Derivatives Market Quiz

What is a derivative?

• A type of mutual fund

• A financial instrument whose value depends on an underlying asset

• A company's profit

• A bond issued by a company

Which of the following is NOT a type of derivative?

• Futures

• Bonds

• Options

• Swaps

What is the main purpose of using derivatives in finance?

• To earn interest

• To reduce taxes

• To manage risk

• To increase inflation

A forward contract is traded:

• On an exchange

• Over the counter (OTC)

• On the stock market

• Through a central bank

Which of the following gives the right but not the obligation to buy or sell an asset?

• Forward

• Swap

• Option

• Future

A futures contract is:

• Always settled by delivery

• Non-standardized

• Traded on exchanges

• Only available to banks

What is the premium in an option contract?

• The strike price

• The expiration date

• The price paid to purchase the option

• The total value of the asset

Which type of swap involves exchanging fixed and floating interest rates?

• Currency swap

• Commodity swap

• Interest rate swap

• Equity swap

Who bears counterparty risk in a forward contract?

• Only the buyer

• Only the seller

• Both parties

• The stock exchange

Speculators use derivatives primarily to:

• Avoid taxes

• Hedge business risk

• Profit from price movements

• Increase their credit score