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WorksheetsDerivatives and Financial Markets Worksheet
Total questions: 52
Worksheet time: 26mins
A derivative derives its value from the value of the ____________.
Government
Underlying asset
Interest rate
Broker
Which of the following is not an underlying for derivatives?
Gold
Foreign Exchange
Real Estate
Equity shares
Derivatives on commodities like Wheat, Sugar and Coffee belong to which category?
Energy derivatives
Metals
Agri-commodities
Financial derivatives
Tulip Mania (1634–1637) is associated with the early use of ____________.
Equity options
Tulip futures
Interest rate swaps
OTC forwards
The first organised futures exchange in the US was __________ in 1865.
CME
NYSE
CBOT
CBOE
CBOE introduced listed stock options in which year?
1970
1973
1982
1987
The L.C. Gupta Committee (1996) recommended derivatives to be classified as __________.
Commodities
Securities
Bonds
The first equity derivative product introduced in India in 2000 was __________.
Stock futures
Index futures
Index options
Stock options
Trading in stock options in India started in _________.
1999
2000
2001
2002
Futures are best described as ___________.
Customized OTC contracts
Standardized contracts traded on an exchange
Insurance contracts
Government securities
A forward contract is a __________ transaction.
Standardised exchange-traded
Customized OTC
Guaranteed by clearing corporation
Cash-settled daily
The major limitation of forwards is ____________.
No counterparty risk
High transparency
Lack of liquidity
Daily settlement
Counterparty risk refers to ___________.
Price risk
Default risk
Legal risk
Liquidity risk
Futures contracts are designed to remove which limitation of forwards?
Lack of standardization
High liquidity
Fixed maturity dates
Daily settlement
Margin in futures is taken because _____________.
Exchanges want extra revenue
Traders need insurance
To reduce default risk
To calculate taxes
Which participant uses derivatives to reduce price risk?
Arbitrageur
Government
Hedger
Trader
Speculators primarily use derivatives for ___________.
Reducing risk
Exploiting price movements
Earning interest
Avoiding taxes
Arbitrage refers to ___________.
Selling low and buying high
Buying and selling in different markets to exploit price difference
Avoiding margins
Long-only trading
OTC derivatives are generally ___________.
Standardized
Private and customized
Cleared by exchange
Very transparent
Exchange-traded derivatives offer which key advantage?
Customization
Counterparty guarantee
Which of the following is NOT a derivative product?
Futures
Equity shares
Options
Swaps
An option provides _________ to the buyer.
Obligation to buy
Obligation to sell
Right without obligation
Guaranteed loss
A swap is essentially __________.
A series of forward contracts
An insurance product
An equity share
A bond
Derivatives help in __________.
Improving price discovery
Increasing risk for all participants
Eliminating trading
Reducing liquidity
Derivatives shift risk from _______ to _______.
Hedgers → Speculators
Speculators → Hedgers
Exchange → Government
Brokers → Exchanges
Which risk is NOT mentioned in Chapter 1?
Price risk
Counterparty risk
Dividend risk
Liquidity risk in derivatives refers to ___________.
High transparency
Difficulty in exiting positions
No margin requirement
Exchange guarantee
Legal risk refers to ___________.
Price not moving
Contract enforceability issues
High margin
Leverage risk
Operational risk includes _____________.
Fraud
Margin gain
High volatility
Government policies
OTC derivatives have __________ disclosure.
Full
Limited
Mandatory
Government audited
Futures contracts are settled ___________.
Weekly
Monthly
Daily (MTM)
Once at maturity
The clearing corporation guarantees _____________.
Only buyer's obligation
Only seller's obligation
Both buyers and sellers
No obligations
Liquidity in markets means ___________.
Orders can be executed without moving prices
No trading occurs
High margins
Only buyers are present
Which market has no centralized limits on margin?
Exchange market
OTC derivatives
Equity cash market
Mutual funds
Speculators prefer derivatives because ___________.
No need to track market
Leverage and low cost
Zero risk
No expiry
Arbitrage opportunities generally exist for _________.
Long time
Very short time
Years
Unlimited time
Declaring derivatives as ‘securities’ led to ___________.
No trading allowed
Application of SCRA
Abolishing exchanges
Only OTC allowed
Forward price is decided on ___________.
Delivery date
Contract initiation date
Anytime
Settlement day
A party that buys a forward is called ___________.
Long
Short
Buyer
Seller
a) Short forward b) Long forward c) Premium payer d) Arbitrageur
Short forward
Long forward
Premium payer
Arbitrageur
Futures remove counterparty risk through ___________.
Brokers
Clearing corporation
RBI
Mutual funds
In OTC markets, risk management is handled by ___________.
Clearing corporation
Individual institutions
SEBI
Exchange
Swaps help manage risks related to ___________.
Only equity
Interest rates & currencies
Only commodities
Only bonds
Derivatives help move speculative trades from ___________.
Organized → unorganized
Unorganized → organized
Foreign → domestic
SEBI → RBI
Price risk means ___________.
Price remains constant
Loss due to price movement
Guaranteed profit
No daily settlement
Liquidity risk arises due to ___________.
the inability to meet short-term financial obligations.
excessive profitability in investments.
overvaluation of assets in the market.
high interest rates on long-term loans.
Which of the following is a risk in derivatives trading?
Very high trading volumes
Inability to exit a position
Too many traders
Strong regulations
Daily MTM settlement helps in ___________.
Increasing speculation
Reducing cumulative default
Avoiding margin
Price manipulation
The exchange-traded derivatives market is _______.
Completely unregulated
Highly regulated and standardized
Always loss-making
Available only to institutions
Model Risk Disclosure Document is given to clients by ___________.
RBI
Brokers
Clearing corporation
Mutual funds
Which risk also includes inadequate documentation and execution errors?
Price risk
Counterparty risk
Operational risk
Dividend risk
The primary purpose of derivatives is to ___________.
Increase debt
Manage risk and enhance price discovery
Replace the stock market
Avoid regulations
