BAFI3200 W6 Foreign exchange futures and options

What are foreign currency derivatives?

• Foreign currency derivatives are government bonds issued in foreign currencies.
• Foreign currency derivatives are physical currencies exchanged in international trade.
• Foreign currency derivatives are stocks that represent ownership in a company.
• Foreign currency derivatives are financial instruments that derive their value from the exchange rates of currencies.

What is future contract in Forex market?

• A futures contract in Forex is a standardized agreement to buy or sell a currency at a set price on a future date.
• A futures contract is a guarantee to exchange currencies at the current market rate.
• A futures contract in Forex is a casual agreement between two parties without a set price.
• A futures contract is a type of insurance against currency fluctuations.

Which of the following is NOT a type of derivative?

• Futures contract

• Options contract

• Swap contract

• Certificate of deposit (CD)

Which type of option gives the holder the right to sell the underlying asset?

• Call option

• Put option

• Swap option

• Convertible option

Which of the following statements about derivatives is NOT true?

• Derivatives can be used to hedge against potential losses in the underlying asset.

• Derivatives are always traded on regulated exchanges.

• Derivatives are financial contracts whose value is derived from the value of an underlying asset, such as a stock, bond, or commodity.

• Options contracts give the buyer the right, but not the obligation, to buy or sell the underlying asset at a specific price by a certain date.

Which of the following best describes an 'option premium'?

• The difference between the strike price and the market price

• The fee charged by the exchange for trading options

• The cost paid by the buyer to the seller to acquire the option

• The potential profit from exercising the option

What is the purpose of using option contract in foreign exchange market?

• To eliminate all currency exchange fees.
• To hedge against currency fluctuations and manage risk.
• To simplify the trading process without any risk.
• To speculate on currency trends for profit.

Which of the following best describes a 'strike price' in options trading?

• The price paid by the buyer to acquire the option contract.

• The price difference between two options contracts.

• The market price of the underlying asset at the time of the option's expiration.

• The price at which the underlying asset can be bought or sold when exercising an option.

Which of the following best describes a 'call option'?

• An option that gives the holder the right to buy the underlying asset.

• An option that gives the holder the right to sell the underlying asset.

• An option that can only be exercised at expiration.

• An option that has no expiration date.

Which of the following is a characteristic of a futures contract?

• It is only available for stocks and bonds.

• It does not require margin deposits.

• It is a legally binding agreement to buy or sell an asset at a future date.

• It can be settled at any time before expiration.