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WorksheetsCCPS C123
Total questions: 102
Worksheet time: 51mins
Name
Class
Date
1.
What is Initial Margin in a futures contract?
a)
Extra amount after a loss
b)
The amount needed to initiate a position
c)
Money kept to avoid default
d)
Extra profit withdrawn
2.
What is a derivative?
a)
A stock
b)
A bond
c)
A financial instrument whose value depends on other assets
d)
A bank account
3.
Which of the following is an example of an underlying variable?
a)
Software
b)
Gold
c)
Lebron JAMES
d)
Vehicles
4.
Which of the following is a financial asset?
a)
Electricity
b)
Oil
c)
Bonds
d)
Weather
5.
Which of these is NOT a type of derivative?
a)
Futures
b)
Options
c)
Swaps
d)
Insurance
6.
Which of the following derivatives are traded in the exchange-traded market?
a)
Swaps and Forwards
b)
Futures and Options
c)
Options and Swaps
d)
Forwards and Futures
7.
What defines the exchange-traded market?
a)
No centralized trading facility
b)
Terms set by counterparties
c)
Standardized contracts defined by the exchange
d)
Decentralized system
8.
Which of the following is a characteristic of the OTC market?
a)
Centralized market
b)
No counterparty credit risk
c)
Terms set by exchange
d)
Decentralized market
9.
What role does the exchange play in an exchange-traded market?
a)
Acts as a broker
b)
Acts as an intermediary to reduce default risk
c)
Provides private deals
d)
Eliminates margins
10.
Which exchange was established in 1848?
a)
CME
b)
CBOE
c)
CBOT
d)
NYSE
11.
Which is a characteristic of the derivatives market?
a)
Small market size
b)
Rigid and less liquid
c)
Limited participants
d)
High flexibility and liquidity
12.
What is a forward contract?
a)
A contract settled daily on exchange
b)
An agreement to buy or sell an asset at a future date for a certain price
c)
A contract with flexible terms
d)
An agreement made on a stock exchange
13.
Which type of trader takes a long position?
a)
The one who sells the asset
b)
The one who delivers the asset immediately
c)
The one who buys the asset at a future date
d)
The one who cancels the contract
14.
Where are forward contracts generally traded?
a)
On a stock exchange
b)
On a commodities exchange
c)
In the OTC market
d)
In centralized digital platforms
15.
Which of the following is NOT a characteristic of forward contracts?
a)
Traded on exchange
b)
Bilateral agreement
c)
Held to maturity
d)
Payoff determined at maturity
16.
Which statement is true about futures contracts?
a)
They are traded OTC
b)
They are always held to maturity
c)
They are marked to market daily
d)
They are private agreements
17.
Futures contracts are typically:
a)
Customized between parties
b)
Settled monthly
c)
Standardized and exchange-traded
d)
Held until expiration
18.
What is a swap contract?
a)
A right to buy or sell an asset
b)
An exchange of cash flows on future dates
c)
A trade of physical goods
d)
A contract traded on exchange
19.
What role do market makers play in swaps?
a)
They remove interest rate risk
b)
They match companies at the same time
c)
They create and take positions in swaps for profit
d)
They guarantee settlement of swaps
20.
What does an option give the holder?
a)
An obligation to buy/sell
b)
A guarantee of profits
c)
The right, but not the obligation, to buy/sell
d)
A fixed income
21.
Which of the following is true about American options?
a)
They can only be exercised at maturity
b)
They must be exercised daily
c)
They can be exercised any time before expiry
d)
They have no expiration date
22.
What is the key difference between a forward and a spot contract?
a)
Spot contracts are customizable, forwards are not
b)
Forward contracts are settled immediately
c)
Spot contracts involve immediate delivery, forward contracts settle in the future
d)
Forward contracts are more flexible
23.
Which best describes a forward contract?
a)
Traded on an exchange with daily settlement
b)
Standardized contracts settled before maturity
c)
Agreement between parties to buy/sell at a future date for a specified price
d)
A right, but not obligation, to buy in future
24.
Where are forward contracts typically traded?
a)
Centralized exchanges
b)
Over-the-counter (OTC) markets
c)
Commodity floors
d)
Retail markets
25.
Who holds the long position in a forward or futures contract?
a)
The party agreeing to sell the asset
b)
The exchange intermediary
c)
The party agreeing to buy the asset in future
d)
The regulator
26.
Which of the following is NOT a characteristic of forward contracts?
a)
Payoff determined at maturity
b)
Bilateral agreement
c)
Held to maturity
d)
Settled daily
27.
Which of the following is true for futures contracts?
a)
Contracts are customized between parties
b)
Daily settlement based on market price (marked to market)
c)
Always held to maturity
d)
Privately negotiated
28.
Which market are futures contracts traded on?
a)
OTC Market
b)
Retail Markets
c)
Exchange-traded Market
d)
Informal barter system
29.
What does "marked to market" mean in futures contracts?
a)
Paying a penalty for early exit
b)
Repricing daily based on market value
c)
Being quoted in multiple currencies
d)
Regulated by central banks
30.
Which of the following is true for swaps?
a)
Traded on exchanges
b)
One-time cash exchange
c)
Agreement to exchange cash flows over time
d)
Cannot be negotiated
31.
The first swap contracts were between which institutions?
a)
Intel and Microsoft
b)
Google and Facebook
c)
IBM and World Bank
d)
Amazon and JPMorgan
32.
Why do large financial institutions act as swap market makers?
a)
To eliminate counterparty risk
b)
To set spot prices
c)
To match buyers and sellers and profit from interest spread
d)
To collect taxes
33.
What does an option contract provide?
a)
A promise to deliver the asset
b)
An obligation to buy/sell an asset
c)
A right to buy/sell an asset at a set price by a set date
d)
Guaranteed profit based on asset price
34.
What is a call option?
a)
The right to sell an asset at a specific price
b)
The obligation to buy an asset
c)
The right to buy an asset at a specified price before expiration
d)
An agreement for interest exchange
35.
What is a put option?
a)
A guarantee of payout
b)
The right to buy an asset at any price
c)
The right to sell an asset at a specific strike price
d)
An agreement to receive dividends
36.
Which type of option allows early exercise at any time before expiration?
a)
European option
b)
Premium option
c)
Asian option
d)
American option
37.
Which option can only be exercised at maturity?
a)
Asian option
b)
American option
c)
European option
d)
Forward contract
38.
In options terminology, what is the spot price?
a)
The strike price agreed in the contract
b)
The original purchase price
c)
The current market price of the asset
d)
The premium paid to the seller
39.
What does the exercise/strike price refer to in options?
a)
The future market price
b)
The premium paid to enter the contract
c)
The price at which the option can be exercised
d)
The price of the underlying in a forward
40.
What is the premium in an option contract?
a)
The difference between strike and spot price
b)
The fee paid by the buyer for the right to exercise
c)
A type of bonus on profit
d)
A penalty for cancellation
41.
Which is a major difference between options and forwards/futures?
a)
Options are obligations; forwards/futures are rights
b)
Options give rights with no obligation, unlike forwards/futures
c)
Forwards settle daily; options do not
d)
Options are always OTC
42.
Which of the following is NOT a standard specification of an options contract?
a)
Call/Put type
b)
Volume of trading
c)
Market interest rate
d)
Exercise price
43.
Who uses derivatives to reduce exposure to price risk?
a)
Speculators
b)
Arbitrageurs
c)
Hedgers
d)
Market makers
44.
Which type of trader aims to profit from market movements using leverage?
a)
Speculator
b)
Hedger
c)
Arbitrageur
d)
Insurer
45.
Arbitrage involves:
a)
Taking risky positions in one market
b)
Avoiding exposure to any financial market
c)
Simultaneous transactions in multiple markets to earn riskless profit
d)
Buying and holding long-term investments
46.
Market makers in derivatives:
a)
Only trade on behalf of clients
b)
Guarantee fixed returns
c)
Are always central banks
d)
Provide liquidity by taking positions without offsetting contracts
47.
Which of the following is NOT a purpose of derivatives trading?
a)
Hedging
b)
Speculating
c)
Transforming liabilities to assets
d)
Purchasing real estate
48.
What is the value of $100 in one year at 10% with annual compounding?
a)
110.52
b)
110.0
c)
110.38
d)
110.25
49.
Which formula represents compound interest with periodic compounding?
a)
V = A × e^(R × n)
b)
V = A × (1 + R/m)^(m × n)
c)
V = A × R × n
d)
V = A / (1 + R)^n
50.
In the formula V = A × e^(Rc × n), what does Rc represent?
a)
Spot rate
b)
Nominal interest rate
c)
Continuously compounded rate
d)
Conversion rate
51.
The formula Rc = m × ln(1 + Rm/m) is used to:
a)
Convert simple to compound interest
b)
Convert annual to daily compounding
c)
Convert discrete rate to continuous rate
d)
Calculate premium
52.
A zero rate (or spot rate) is defined as:
a)
Rate of inflation over time
b)
Interest rate for cash flow received today
c)
Rate on investment that provides payoff only at maturity
d)
Dividend yield over time
53.
Forward rate is:
a)
A spot rate used for immediate transactions
b)
An average of historic interest rates
c)
Future zero rate implied by today’s term structure
d)
The rate fixed by central banks
54.
The forward rate between time periods T₁ and T₂ (with continuous compounding) is given by:
a)
(T₂ - T₁) / (R₂ - R₁)
b)
(R₂ × T₂ - R₁ × T₁) / (T₂ - T₁)
c)
(R₁ + R₂) / 2
d)
(T₁ × T₂) / (R₂ - R₁)
55.
What is the payoff formula for a long forward position at maturity?
a)
K - ST
b)
ST + K
c)
ST - K
d)
K / ST
56.
Which of the following is a pro of a forward contract?
a)
Daily settlement
b)
No collateral required
c)
High liquidity
d)
Standardized terms
57.
What is a key con of forward contracts?
a)
High margin requirements
b)
No credit risk
c)
Counterparty default risk
d)
Public trading
58.
What is the formula to calculate forward price with no income or storage?
a)
F₀ = S₀ × e^(r × T)
b)
F₀ = S₀ - I
c)
F₀ = S₀ + U
d)
F₀ = S₀ × (1 + r)^T
59.
If an asset provides known income, what is the formula for forward price?
a)
F₀ = S₀ × e^(r × T)
b)
F₀ = (S₀ - I) × e^(r × T)
c)
F₀ = S₀ + I
d)
F₀ = (S₀ + U) × e^(r × T)
60.
What formula is used when an asset provides a known yield?
a)
F₀ = S₀ × e^((r - q) × T)
b)
F₀ = (S₀ - I) × e^(r × T)
c)
F₀ = S₀ × e^(r × T)
d)
F₀ = S₀ + I
61.
Which formula applies for commodity with storage cost U?
a)
F₀ = S₀ × e^((r + u) × T)
b)
F₀ = (S₀ + U) × e^(r × T)
c)
F₀ = S₀ × e^((r - u) × T)
d)
F₀ = (S₀ - U) × e^(r × T)
62.
What does the formula F₀ = S₀ × e^((r + u) × T) represent?
a)
Known income asset
b)
Commodity with storage cost as percent of value
c)
Non-income asset
d)
Foreign exchange pricing
63.
In a forward foreign currency contract, what is being agreed upon?
a)
Immediate currency exchange
b)
Loan repayment in future
c)
Exchange of currencies at a set future rate and date
d)
Market interest adjustment
64.
What is the formula for forward exchange rate?
a)
F₀ = S₀ × e^(r × T)
b)
F₀ = S₀ × e^((r - rf) × T)
c)
F₀ = (S₀ - I) × e^(r × T)
d)
F₀ = S₀ × e^((r + q) × T)
65.
What is the meaning of "forward premium"?
a)
Spot rate is higher than forward rate
b)
Forward rate equals zero
c)
Forward rate is higher than spot rate
d)
Negative interest on foreign currency
66.
In a forward-forward deposit, what does the long party agree to do?
a)
Lend funds in future
b)
Borrow funds in future
c)
Buy a forward contract
d)
Exchange currencies
67.
In a forward-forward deposit, what is Rₖ?
a)
Exchange rate agreed
b)
Spot interest rate
c)
Interest rate agreed from T₁ to T₂
d)
Compounded rate until maturity
68.
What does a Forward Rate Agreement (FRA) involve?
a)
Currency exchange in future
b)
Agreement to lend a fixed amount today
c)
Agreement to apply a fixed rate to a notional amount in the future
d)
Buying stocks at a future date
69.
In FRA, what is the term for the amount on which interest is calculated?
a)
Market principal
b)
Real value
c)
Notional principal
d)
Interest margin
70.
What is the cash flow at T₂ for a long position in an FRA?
a)
L × (RK − RM) × (T₂ − T₁)
b)
L × (RM − RK) × (T₂ − T₁)
c)
L × RM × T₁
d)
L / (T₂ − T₁)
71.
What is the present value at T₁ of the FRA payoff for a long position?
a)
(L × (RK − RM) × (T₂ − T₁)) / (1 + RM × (T₂ − T₁))
b)
(L × (RM − RK) × (T₂ − T₁)) / (1 + RM × (T₂ − T₁))
c)
(L × RM × T₁) / (1 + RK × T₁)
d)
(L × RK × T₂) / (1 + RM)
72.
What is the role of RM in FRA valuation formulas?
a)
The fixed interest rate
b)
The compounding base
c)
The market rate at T₁
d)
The spread on fixed income
73.
A short FRA position is used to hedge against:
a)
Inflation risk
b)
Interest rate increases
c)
Decreasing interest rates
d)
Stock volatility
74.
What happens if the market rate RM > RK in a long FRA position?
a)
The long party gains
b)
The short party gains
c)
There is no payoff
d)
The principal is returned
75.
In FRA valuation, when is the cash flow generally settled?
a)
At T₂
b)
At T₁
c)
At contract signing
d)
At maturity of underlying asset
76.
What is the importance of specifying asset grade in commodity futures contracts?
a)
To determine delivery speed
b)
To meet customer demand
c)
To define which grades are acceptable for delivery, as different grades affect price
d)
To allow financial settlements only
77.
What is true about the financial assets in futures contracts?
a)
They are redefined after every trade
b)
They are vague and unclear
c)
They are generally well defined and unambiguous
d)
They are not used in futures contracts
78.
What does the contract size in a futures contract specify?
a)
The strike price of the asset
b)
The amount of the asset that must be delivered under one contract
c)
The delivery location of the asset
d)
The total margin requirement
79.
What is one reason for introducing mini contracts in futures trading?
a)
To reduce delivery delays
b)
To avoid price fluctuations
c)
To attract smaller investors
d)
To limit contract durations
80.
Why is specifying the delivery location important in futures contracts?
a)
To determine trade commissions
b)
To eliminate delivery obligations
c)
To account for transportation costs and price adjustments by location
d)
To increase contract prices
81.
What is typically used to refer to a futures contract?
a)
Its broker name
b)
Its margin rate
c)
Its delivery month
d)
Its trade time
82.
How are prices quoted in the Treasury bond futures contract?
a)
In euros per dollar
b)
In dollars and cents
c)
In dollars and thirty-seconds of a dollar
d)
As a percentage of face value
83.
What is the purpose of price limits in futures contracts?
a)
To regulate interest payments
b)
To prevent large price movements due to speculative excesses
c)
To restrict contract access
d)
To balance demand and supply
84.
What does a position limit in futures trading control?
a)
The number of trading hours
b)
The maximum number of contracts a speculator may hold
c)
The delivery location of assets
d)
The grade of commodity to be traded
85.
What is a margin in futures trading?
a)
A fee charged by brokers for settlement
b)
A delivery charge based on location
c)
Cash or marketable securities used to guarantee the contract
d)
The market price difference between spot and futures
86.
What is the role of the clearing house in futures trading?
a)
Acts as intermediary and calculates the net position of members
b)
Stores delivered commodities
c)
Issues bonds for futures contracts
d)
Sets the margin requirement for individual traders
87.
What is the purpose of Maintenance Margin?
a)
To cover daily profits
b)
To prevent margin account from going negative
c)
To guarantee profits
d)
To avoid price change
88.
What is Variation Margin used for?
a)
To start a position
b)
To avoid delivery
c)
To top up account when below maintenance margin
d)
To close a position
89.
What does Mark-to-Market mean in futures trading?
a)
Marking price for the month
b)
Adjusting margin account daily based on gain/loss
c)
Setting prices on spot
d)
Not adjusting margins
90.
What happens when the balance is greater than initial margin?
a)
Withdrawals are allowed
b)
Must increase deposit
c)
No change
d)
Delivery is forced
91.
What is a margin call?
a)
Withdrawal option
b)
The loss credited to trader
c)
The deposit after falling below maintenance margin
d)
Clearing house sells contract
92.
In futures contracts, who decides when and where delivery happens (when multiple options exist)?
a)
Long position holder
b)
The exchange
c)
Short position holder
d)
Clearing broker
93.
What does delivery notice include?
a)
Only grade of asset
b)
Only where delivery will be made
c)
How many contracts, delivery location, asset grade
d)
Only contract price
94.
Why might future and spot prices differ?
a)
Because of market noise
b)
Due to cost of carry and convenience yield
c)
Only due to trader's demand
d)
It's random
95.
What is convenience yield?
a)
Cost of storing assets
b)
Random return from asset
c)
Benefit from holding physical asset
d)
Delivery margin
96.
In a contango market, how do futures prices behave over time?
a)
Stay constant
b)
Stay below spot price
c)
Remain above spot price and converge
d)
Drop sharply
97.
In a backwardation market, what do futures prices do?
a)
Stay above spot price
b)
Drop below spot price and converge
c)
Stay fixed
d)
Randomly move
98.
Formula to determine futures price for a non-income asset?
a)
F₀ = S₀ × e^(rT)
b)
F₀ = (S₀ – I) × e^(rT)
c)
F₀ = S₀ × e^(r – q)T
d)
F₀ = S₀ × e^(r – rf)T
99.
What type of hedge is used when you own an asset and want to protect against price drops?
a)
Long hedge
b)
Short hedge
c)
No hedge needed
d)
Cross hedge
100.
What is the objective of a futures hedge?
a)
Maximize profit
b)
Lock in position
c)
Neutralize risk
d)
Avoid settlement
101.
When should a long hedge be used?
a)
When planning to sell an asset
b)
When uncertain about prices
c)
When planning to buy in future
d)
When margin is high
102.
In index futures, what does the formula N = β × (P / Qf) help with?
a)
Calculating risk-free rate
b)
Calculating number of futures contracts to short
c)
Determining value of portfolio
d)
Calculating beta
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