Futures and Options Quiz

Which of the following is a key difference between a futures contract and a forward contract?

• Futures are traded over-the-counter (OTC), while forwards are exchange-traded

• Futures contracts have standardized terms, while forward contracts are customizable

• Forwards are marked-to-market daily, while futures settle at expiration

• Futures contracts are settled in cash only, while forwards are always physically settled

Which of the following best describes an option contract?

• A contract that gives the buyer the right, but not the obligation, to buy or sell an asset at a fixed price

• A contract that obligates both parties to complete the transaction at a future date

• A contract used only for hedging purposes in commodity markets

• A type of derivative that can only be settled in cash

What is the primary purpose of an option contract in financial markets?

• To allow investors to speculate on price movements without owning the underlying asset

• To create a binding agreement for immediate asset transfer

• To facilitate the borrowing of funds for investment purposes

• To provide a guarantee of future prices for buyers and sellers

Which of the following statements is true regarding the settlement of futures contracts?

• They can only be settled through physical delivery of the underlying asset

• They are settled at the end of the contract period only

• They require no margin payments from the parties involved

• They are marked-to-market daily, reflecting current market prices

In which scenario would a trader most likely use a call option?

• When they anticipate an increase in the price of the underlying asset

• When they are looking to sell the underlying asset immediately

• When they want to hedge against potential losses in a long position

• When they expect the price of the underlying asset to decrease