FIN30014 L2 T1B

What is the primary purpose of financial risk management?

• To enhance market share

• To increase profits

• To manage financial risks

• To reduce taxes

What is a derivative?

• A government bond

• A type of stock

• An instrument whose value depends on underlying variables

• A fixed deposit account

Which of the following is NOT a type of derivative?

• Futures contracts

• Savings accounts

• Options contracts

• Forward contracts

What is a call option?

• An obligation to sell an asset

• An obligation to buy an asset

• The right to buy an asset

• The right to sell an asset

What does hedging aim to achieve?

• Eliminate all risks

• Speculate on price movements

• Reduce financial risk

• Increase market volatility

What is the initial margin in futures trading?

• The final settlement price

• The profit from the trade

• A deposit to cover potential losses

• The total value of the contract

How is a futures position typically closed out?

• By transferring to another trader

• By selling the underlying asset

• By entering an equal and opposite position

• By holding until maturity

What is the main difference between forward and futures contracts?

• Futures are traded on exchanges, forwards are not

• Forwards are standardized, futures are not

• Futures have no delivery date, forwards do

• Forwards are settled daily, futures are not

What is the purpose of speculation in trading derivatives?

• To ensure delivery of assets

• To reduce risk

• To seek profit from market movements

• To stabilize prices

What is a maintenance margin?

• The profit margin on a trade

• The minimum balance required to keep a position open

• The initial deposit required to open a position

• The fee charged by brokers