Quiz FO - Tutorial 1a

What is a derivative instrument?

• An asset that has intrinsic value

• A financial instrument that derives its value from an underlying asset

• A type of stock

• A government bond

Which of the following is a disadvantage of forward contracts?

• Guaranteed performance

• Lack of liquidity and default risk

• Standardized features

• High liquidity

What is the primary role of a clearinghouse in futures trading?

• To provide market analysis

• To act as an intermediary and manage counterparty risk

• To set prices for futures contracts

• To facilitate open outcry trading

What is basis risk?

• The risk of price changes in the underlying asset

• The risk of market manipulation

• The risk of default by a counterparty

• The risk associated with the difference between cash price and futures price

Which of the following best describes hedgers in the derivatives market?

• They seek to profit from price movements

• They aim to reduce risk associated with price fluctuations

• They are market makers

• They only trade options

What is the main difference between commodity derivatives and financial derivatives?

• Commodity derivatives are cash-settled

• Financial derivatives have tangible underlying assets

• Financial derivatives are traded over-the-counter

• Commodity derivatives have tangible underlying assets

What does 'contango' refer to in futures trading?

• A type of arbitrage opportunity

• A method of trading options

• Futures prices lower than expected spot prices

• Futures prices higher than the expected spot price

What is the purpose of an option contract?

• To provide the obligation to buy or sell an asset

• To provide the right but not the obligation to buy or sell an asset

• To guarantee delivery of an asset

• To standardize trading conditions