Derivatives Quiz

What is the value of a forward contract at initiation?

• Equal to the spot price

• Equal to the forward price

• Zero

• Depends on interest rate

A call option gives the holder the right to:

• Sell the asset at a specific price

• Buy the asset at a specific price

• Receive dividends from the asset

• Receive the risk-free rate

A plain-vanilla interest rate swap typically exchanges:

• Stock for bonds

• Equities for cash

• Fixed interest for floating interest

• Options for futures

The forward price of an asset is calculated based on:

• Expected future dividends

• Past spot prices

• Spot price and interest rate

• Option premiums

Which option has unlimited profit potential for the buyer?

• Put option

• Call option

• Forward contract

• Swap agreement

What is the primary purpose of using swaps?

• Speculation

• Arbitrage

• Hedging interest rate risk

• Trading currencies

If the spot price is above the strike price, a call option is:

• Out-of-the-money

• At-the-money

• In-the-money

• Expired

The party that agrees to sell the underlying in a forward contract holds a:

• Long position

• Short position

• Hedged position

• Neutral position

At expiration, the value of a forward contract is:

• Always positive

• Based on spot vs. forward price

• Always zero

• Negative interest rate

A swap contract is similar to:

• A futures contract

• A portfolio of forward contracts

• A call option

• A put option