It indicates that it has no independent value.

(a)  

A customized contract between two entities, where settlement takes place on a specific date in the future at today's pre-agreed price.

(a)  

Longer-dated options and are generally traded over-the-counter.

(a)  

Theses are options on portfolios of underlying assets.

(a)  

These entail swapping only the interest related cash flows between the parties in the same currency.

(a)  

A number used to represent the changes in a set of values between a base time period and another time period.

(a)  

A price index and hence reflects the returns one would earn if investment is made in the index portfolio.

(a)  

It represents the cost of executing a transaction in a given stock, for a specific predefined order size, at any given point of time.

(a)  

A practical and realistic measure of market liquidity; closer to the true cost of execution faced by a trader in comparison to the bid-ask spread.

(a)  

These risks are associated with the economic, political, sociological and other macro-level changes.

(a)  

These indexes provide the benchmark for sector specific funds.

(a)  

This contract is one to one bi-partite contract, to be performed in the future, at the terms decided today.

(a)  

He has the right to exercise the option but no obligation.

(a)  

The price paid by the option buyer to the option seller for granting the option.

(a)  

Price at which the option is to be exercised.

(a)  

Date on which the option gets exercised by the option holder/buyer.

(a)  

Essay: 10 points

What does it mean to "exercise" an option?

Explain your answer through a possible situation.