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WorksheetsDERIVATIVES ( 70 Q )
Total questions: 70
Worksheet time: 2hrs 20mins
Forwards are _____.
over-the-counter derivatives.
absolutely the same as futures.
exchange-traded derivatives.
standard as futures
Possibility of counter party risk is highest in
Futures
Options
Forwards
All of above
Derivative is Underlying.True or False ?
True
False
Derivatives came into existence for :
Speculation
Arbitrage
Hedging
Gambling
T+2 type of settlement in equities market is the example of :
Real Time Gross Settlement (RTGS)
Rolling Settlement
Settlement by word of mouth
None
Traded Derivatives are Contract. True or False ?
True
False
Value of Maintenance Margin is generally more then Initial Margin.True or False?
True
False
By opening only D'mat Account, one can trade in the market.True or False?
False
True
Which of the following is the example of ETF :
VIX
Bank Nifty
Nifty BeeS
MIBOR
M2M margin is settled on:
Weekly Basis
Daily Basis
Monthly Basis
Fortnightly Basis
What kind of settlement usually applied if the investors are trading the derivatives for speculation purposes?
Physical settlement
Cash settlement
Hedging
Return
Derivatives help to manage possible future risks especially against the fluctuation of price risk. This is
Speculation
Arbitraging
Hedging
None is correct
A call option is a right to
force another party to buy the underlying security.
repurchase a previously sold underlying security.
sell the underlying security.
buy the underlying security.
Forwards are _____.
absolutely the same as futures.
over-the-counter derivatives.
exchange-traded derivatives.
standardized like futures.
What is a (Financial) Derivative?
A financial contract that gives the owner a way to manage against market risk.
A financial contract whose value is derived from the value of an underlying asset.
A financial contract whose payoff is depends on an event occurring.
A financial contract that gives the owner a way to manage against financial risks.
Is the price where the options contract are sold and bought
Margin
Premium
Strike price
Down payment
In an options contract, the price at which the options holder can buy or sell the underlying asset is called
Premium
Strike price
Margin
Market price
What is European PUT Option
Gives the holder the obligation to sell underlying asset only at expiry date
Gives the holder the right to sell underlying asset only at expiry date
Gives the holder the right to sell underlying asset anytime before expiry date
Gives the holder the obligation to sell underlying asset anytime before expiry date
Forward contracts are not guaranteed to performance
True
False
Short in futures means
buy the underlying
sell the underlying
hold the underlying
If the market price on the expiry date is more than the contract price, what will you do if you hold a put option
Exercise the Option
Do not Exercise the option
The difference between future and forward is
future contract is standardized while forward contract is not standardized
future contract is not standardized while forward contract is standardized
both contracts are standardized
both contracts are not standardized
When you are expecting a stock to go up in the future you are most likely to buy
put option
call option
future
forward
You dont have a stock and you know a stock will move immediately on upcoming news. However you dont know the direction of the movement, it can be up and can be down. You can make money by
buying both a call option and a put option
buying a call option only
buying a put option only
do nothing
When you sell a call option without the underlying stock. The position will give you
limited risk and limited profit
limited risk and unlimited profit
unlimited risk and limited profit
unlimited risk and unlimited profit
What kind of options can be exercised on any date before the day of expiration?
a. American
b. European
c. Bermudan
d. None of these
Long position in an investment becomes profitable when the _____________.
a. Asset price goes up
b. Asset price goes down
c. Asset price remains constant
d. None of these
A long call option position holder pays the premium in order to _____________.
a. Buy the right to exercise the option
b. Sell the right to exercise the option
c. Exercise the option
d. None of the these
A short call option position holder receives the premium and floats the option in anticipation that:
a. The stock price will remain at the strike price
b. The stock price will go above the strike price
c. The stock price will not go above the strike price
d. None of these
The short put option position holder receives the premium and floats the option in anticipation that:
a. The stock price will remain at the strike price
Manu Sharma. Financial Derivatives: A Case Study Based Learning (Page 15). . Kindle Edition.
b. The stock price will remain above the strike price
c. The stock price will not go above the strike price
d. None of these
The value of an option equals:
a. Time value of an option - Intrinsic value of an option
b. Intrinsic value of an option - Time value of an option
c. Intrinsic value of an option + Time value of an option
d. None of these
The binomial option pricing model is based on the assumption that the portfolios will generate:
a. Riskless rate of return
b. Corporate rate of return
c. Random return
d. None of these
The Black-Scholes option pricing model determines which of the following price options?
a. Stock price, exercise price, risk-free rate of return and volatility
b. Stock price, exercise price, risk-free rate and time to maturity
c. Stock price, time to maturity, exercise price, risk-free rate of return and volatility
d. None of these
As the stock price increases, the price of the option:
a. Increases
b. Decreases
c. Not affected
d. None of these
The delta of the option is defined as the following:
a. Change in the option price for large changes in stock price
b. Change in the option price for small changes in stock price
c. Change in the option price for small changes in interest rates
d. None of these
The gamma of the option is defined as the following:
a. Theta’s sensitivity to small changes in share price
b. Delta’s sensitivity to small changes in share price
c. Rho sensitivity to small changes in share price
d. None of these
The theta of the option can be defined as the following:
a. Option’s value’s sensitivity to small changes in time to maturity
b. Option’s value’s sensitivity to small changes in interest rates
c. Option’s value’s sensitivity to small changes in exercise price
d. None of these
As the time to maturity increases, the value of the option:
a. Increases
b. Decreases
c. Remains constant
d. None of these
As the volatility of the stock increases, the price of the option:
a. Increases
b. Decreases
c. Remains constant
d. None of these
As the risk-free rate of return increases, the price of the call option:
a. Increases
b. Decreases
c. Remains constant
d. None of these
The bullish option strategies are employed when the options trader expects underlying stock price to move:
a. Downwards
b. Upwards
c. Either direction
d. None of these
The bearish option strategies are employed when the options trader expects underlying stock price to move:
a. Downwards
b. Upwards
c. Either direction
d. None of these
The strategy of long call option and protective put are part of the following strategy:
a. Bearish
b. Bullish
c. Neutral
d. None of these
The long straddle is part of which of the following strategies:
a. Bearish
b. Bullish
c. Neutral
d. None of these
The short straddle is created by using a combination of the following:
a. Short at the money call option and short at the money put option
b. Short in the money call option and short at the money put option
c. Short at the money call option and short in the money put option
d. None of these
The long strangle is created by using the combination of the following:
a. Long in of the money call option and long out of the money put option
b. Long out of the money call option and long out of the money put option
c. Long out of the money call option and long in of the money put option
d. None of these
The short strangle is created by using the combination of the following:
a. Short in of the money call option and long out of the money put option
b. Long out of the money call option and short in of the money put option
c. Short out of the money call option and short out of the money put option
d. None of these
The long call condor spread can be created by using the following combination of options:
a. Short in the money call option, long in the money call option, short out of the money call option and long out of the money call option
.
b. Short out the money call option, long in the money call option, short out of the money call option and long in of the money call option
c. Long in the money call option, short in the money call option, short out of the money call option and long out of the money call option
d. None of these
The short call butterfly spread can be created by using the following combination of options:
a. Longing in the money call option for two long at the money call options and longing one out of the money call option
b. Shorting in the money call option for two long at the money call options and shorting one out of the money call option
c. Shorting at the money call option for two long in the money call options and shorting one in of the money call option d.
d. None of these
LIBOR refers
A. London Inter Bank Offered Rate
B. London International Bank Offered Rate
C. London interest for Bank offering Rate
D. London Interest Bond off shore Rate
LIBOR, has reference to
a) Interest rate offered by IMF to member States
b) Bench mark for short term interest rates in India
c) Trade index composed by the World Trade Organisation
d) Bench mark for short term interest rates across the world
MIBOR can be explained by
The Mumbai InterBank Overnight Rate, is the overnight lending offered rate for Indian commercial banks.
is calculated based on input from a panel of 30 banks and primary dealers.
MIBOR was first established in 1998, and
modeled after the more famous London InterBank Overnight Rate (LIBOR)
All the above
LIBOR is originated by
British Bankers’ Association. (BBA)
Barclays Bank
Bank America
Intercontinental Exchange (ICE)
Intercontinental Exchange Benchmark Administration
LIBOR is now administered by
British Bankers’ Association. (BBA)
Barclays Bank
American Bankers' Association
Intercontinental Exchange (ICE)
Intercontinental Exchange Benchmark Administration
LIBOR is based on
British Pound (GBP), Japanese Yen (JPY) and Swiss Franc (CHF)
British Pound (GBP), Japanese Yen (JPY) Swiss Franc (CHF) and Chinese Yuan
British Pound (GBP), Japanese Yen (JPY), Euro and Chinese Yuan
British Pound (GBP), Japanese Yen (JPY), Euro and Deutsch Mark
The LIBOR serves seven different maturities:
overnight, one week, and 1, 2, 4, 6 and 12 months.
overnight, one week, and 1, 2, 3, 6 and 12 months.
overnight, one week, and 1, 2, 3, 5 and 12 months.
LIBOR is used worldwide in a wide variety of financial products.
Standard interbank products like forward rate agreements (FRA), interest rate swaps, interest rate futures/options and swaptions
Commercial products like floating rate certificate of deposits and
notes, syndicated loans and variable
rate mortgages
Hybrid Products like collateralized debt obligations (CDO), collateralized mortgage obligations (CMO), and a wide
variety of accrual notes, callable notes and perpetual notes.
Consumer loan-related products like individual mortgages and
student loans
All the above
In an interest rate swap, two parties agree to swap the following:
a. Principal amounts
b. Interest payments
c. Principal and interest payments
d. None of these
The major risks involved in interest rate swaps are: a.
a.Interest rate risk and credit risk
b. Interest rate risk
c. Credit risk
d. None of these
In which of the following cases does a party that receives a fixed-rate payment make profits?
a. When interest rates fall
b. When interest rate rises
c. When interest remains unchanged
d. None of these
A credit default swap refers to:
a. Default insurance on a loan or bond
b. Swap of interest rates
c. Swap of currency exchange rates
d. None of these
The privilege of having an option on a swap is called:
a. Swaption
b. Currency option
c. Interest rate option
d. None of these
Payer swaptions provide the right but not the obligation to:
a. Pay floating rate and receive floating rate in the underlying swap
b. Pay fixed rate and receive fixed rate in the underlying swap
c. Pay fixed rate and receive floating rate in the underlying swap
d. None of these
Credit derivatives means
a.A credit derivative is a financial contract that allows parties to minimize their exposure to credit risk.
b. consist of a privately held, negotiable bilateral contract traded over-the-counter (OTC) between two parties in a creditor/debtor relationship.
c.allow the creditor to effectively transfer some or all of the risk of a debtor defaulting to a third party. This third party accepts the risk in return for payment, known as the premium
d. All the above
Types of Credit derivatives are
a Credit default swaps (CDS)
b. Collateralized debt obligations (CDO)
c.Total return swaps Credit spread options/forwards
d. All the above
Credit default swap includes
a .
Credit default swaps, or CDS, are credit derivative contracts that enable investors to swap credit risk on a company, country, or other entity with another counterparty. Credit default swaps Credit default swaps
b.A credit default swap is the most common form of credit derivative and may involve municipal bonds, emerging market bonds, mortgage-backed securities, or corporate bonds
c.are the most common type of OTC credit derivatives and are often used to transfer credit exposure on fixed income products in order to hedge risk.
d.are customized between the two counterparties involved, which makes them opaque, illiquid, and hard to track for regulators.
e.. All the above
A collateralized debt obligation
a is a complex structured-finance product that is backed by a pool of loans and other assets.
b.underlying assets serve as collateral if the loan goes into default.
c.Though risky and not for all investors, CDOs are a viable tool for shifting risk and freeing up capital.
e.. All the above
A Total return swap means
a. one party makes payments according to a set rate, while another party makes payments based on the rate of an underlying or reference asset.
b.permit the party receiving the total return to benefit from the reference asset without owning it.
c.The receiving party also collects any income generated by the asset but, in exchange, must pay a set rate over the life of the swap.
d. The receiver assumes systematic and credit risks, whereas the payer assumes no performance risk but takes on the credit exposure the receiver may be subject to.
e.. All the above
Credit spread option means
a. is a type of strategy involving the purchase of one option and the sale of a second option. The buyer of a credit spread option can receive cash flows if the credit spread between two specific benchmarks widens or narrows, depending upon the way the option is written.
b. come in the form of both calls and puts, allowing both long and short credit positions.
c.The two options in the credit spread strategy have the same class and expiration but vary in terms of the strike price. As an investor enters the position, he receives a net credit; if the spread narrows, he will profit from the strategy.
e.. All the above
A weather derivative is a financial instrument
a. used by companies or individuals to hedge against the risk of weather-related losses.
b. They trade over-the-counter (OTC), through brokers, and via an exchange. Weather derivatives
c.work like insurance, paying out contract holders if weather events occur or if losses are incurred due to certain weather-related events.
d. Agriculture, tourism and travel, and energy are just a few of the sectors that utilize weather derivatives to mitigate the risks of weather.
e.. All the above
