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Derivatives

Total questions: 72

Worksheet time: 36mins

Name
Class
Date
1.

In the OTC market described, where are financial instruments such as currencies, stocks, and commodities traded?

a)

Directly between two parties

b)

Only on national stock exchanges

c)

Through auction on trading floors

d)

Via automated matching with no dealers

2.

In the Forex Market section (OTC), which market type is described as an immediate transaction?

a)

Spot Market

b)

Cash Market (Forward market)

c)

Both Spot and Cash Markets

d)

Neither market

3.

According to the Forex Market notes, which description correctly matches the Cash Market (Forward market)?

a)

A transaction agreed now for a specified future date

b)

An immediate transaction settled on the spot date

c)

A market with only exchange‑traded derivatives

d)

A market where transactions are unspecified in time

4.

Based on the statement provided, what is the stated purpose of a forward in the Forex Market context?

a)

Hedging to reduce exchange rate risk

b)

Speculation to maximise exchange gains

c)

Arbitrage to exploit price discrepancies

d)

Regulation to enforce market rules

5.

Which statement is correct about the features of the contracts ?

a)

Futures are standardized contracts

b)

Forwards are standardized contracts

c)

Futures are customized contracts

d)

Forwards are exchange-traded standardized contracts

6.

Which market requires an initial margin?

a)

Futures

b)

Forwards

c)

Both futures and forwards

d)

Neither futures nor forwards

7.

According to the differences between Forwards and Futures, when is settlement is priced for each contract type? Select the correct statement.

a)

Futures are settled on a daily basis; forwards are settled on maturity

b)

Futures are settled on maturity; forwards are settled on a daily basis

c)

Both futures and forwards are settled only on maturity

d)

Both futures and forwards are settled on a daily basis

8.

What is exchanged in an interest rate swap as described in the excerpt?

a)

Principal amounts in different currencies

b)

Interest payments on a notional principal

c)

Shares of stock between two firms

d)

Physical delivery of bonds at maturity

9.

In the description of interest rate swaps, what happens to the notional principal?

a)

It is exchanged at the start of the contract

b)

It is exchanged at the end of the contract

c)

It is adjusted monthly based on inflation

d)

It is never exchanged

10.

Which statement best describes a swaption?

a)

A swaption is a mandatory agreement to enter into any swap at a future date

b)

A swaption is an over-the-counter contract that gives the buyer the right but not the obligation to enter into an interest rate swap at a predetermined strike rate and future date

c)

A swaption is an exchange-traded option on a currency swap that obligates both parties to exchange principals

d)

A swaption is a futures contract that fixes the delivery price of a bond

11.

For a non‑income‑paying asset with current spot price ₹10,000 and risk‑free interest rate 8% per annum, determine the 1‑year forward price under semiannual compounding.

a)

₹10,800

b)

₹10,816

c)

₹10,824.32

d)

₹10,832.87

12.

For a non‑income‑paying asset with current spot price ₹10,000 and risk‑free interest rate 8% per annum, determine the 1‑year forward price under quarterly compounding.

a)

₹10,800

b)

₹10,816

c)

₹10,824.32

d)

₹10,832.87

13.

For a non‑income‑paying asset with current spot price ₹10,000 and risk‑free interest rate 8% per annum, determine the 1‑year forward price under continuous compounding.

a)

₹10,800

b)

₹10,816

c)

₹10,824.32

d)

₹10,832.87

14.

Using the forward price obtained with annual compounding and maturity spot price ₹10,000, what is the payoff of a long forward position where payoff is defined as ST−F0S_T - F_0 ?

a)

−₹800

b)

₹0

c)

₹800

d)

Depends on the compounding frequency

15.

Under cost of carry pricing with no income, when storage cost is a percentage u of the spot price, which formula gives the forward price F0?

a)

F0=S0e(r+u)TF_0 = S_0 e^{(r+u)T}

b)

F0=(S0+U)erTF_0 = (S_0 + U)e^{rT}

c)

F0=S0e(r−y)TF_0 = S_0 e^{(r-y)T}

d)

F0=S0erT+Storage costF_0 = S_0 e^{rT} + \text{Storage cost}

16.

Under cost of carry pricing with no income, when storage cost is a fixed amount U paid continuously or initially, which formula gives the forward price F0?

a)

F0=(S0+U)erTF_0 = (S_0 + U)e^{rT}

b)

F0=S0e(r+u)TF_0 = S_0 e^{(r+u)T}

c)

F0=S0erT+Storage costF_0 = S_0 e^{rT} + \text{Storage cost}

d)

F0=S0e(r−y)TF_0 = S_0 e^{(r-y)T}

17.

Under cost of carry pricing with no income, when the storage cost is paid at the end of the contract, which expression gives the forward price F0?

a)

F0=S0erT+Storage costF_0 = S_0 e^{rT} + \text{Storage cost}

b)

F0=(S0+U)erTF_0 = (S_0 + U)e^{rT}

c)

F0=S0e(r+u)TF_0 = S_0 e^{(r+u)T}

d)

F0=S0e(r+c−y)TF_0 = S_0 e^{(r+c-y)T}

18.

In the variable descriptions, what does S represent?

a)

Current market (spot) price of the asset

b)

Forward price agreed today for future delivery

c)

Risk-free interest rate used for financing

d)

Carry/storage costs for warehousing and insurance

19.

In the variable descriptions, what does T represent?

a)

Time to maturity until the contract expires (in years)

b)

Current market (spot) price of the asset

c)

Convenience yield or income from holding the asset

d)

Carry/storage costs for warehousing and insurance

20.

With income or convenience yield, which formula expresses the forward price F0 in the cost of carry model?

a)

F0=S0×e(r+c−y)TF_0 = S_0 \times e^{(r+c-y)T}

b)

F0=S0×e(r−y)TF_0 = S_0 \times e^{(r-y)T}

c)

F0=(S0+U)erTF_0 = (S_0 + U)e^{rT}

d)

F0=S0e(r+u)TF_0 = S_0 e^{(r+u)T}

21.

Which statement defines the cost of carry in financial markets as described?

a)

The total cost of holding an asset until a forward or futures contract matures

b)

The profit from arbitrage between spot and forward markets

c)

The premium paid for optional early delivery

d)

The expected dividend yield earned after contract expiry

22.

The spot price of crude oil is ₹6,000 per barrel. The risk-free rate of interest is 7% per annum with continuous compounding. Holding crude oil involves a storage cost estimated at 2% per annum, while the convenience yield associated with holding the physical commodity is estimated to be 3% per annum. Assuming the forward contract matures after one year, determine the theoretical forward price of crude oil using the cost of carry model.

a)

₹6,244 per barrel

b)

₹6,371 per barrel

c)

₹6,420 per barrel

d)

₹6,600 per barrel

23.

The annual spot (zero) interest rates are: 1‑year spot rate R1 = 6% per annum; 2‑year spot rate R2 = 7% per annum. An investor enters an interest rate forward (FRA) to lock in the rate for a 1‑year loan for the period from year 1 to year 2. Using the formula F(t1,t2)=R2t2−R1t1t2−t1F(t_1, t_2) = \frac{R_2 t_2 - R_1 t_1}{t_2 - t_1} , what is the forward interest rate per annum for this period?

a)

6% per annum

b)

7% per annum

c)

8% per annum

d)

9% per annum

24.

According to IFRS 9, a derivative must be settled:

a)

Immediately

b)

At maturity only

c)

At a future date

d)

On demand

25.

According to IFRS 9, a derivative must be settled:

a)

Immediately

b)

At maturity only

c)

At a future date

d)

On demand

26.

Which of the following is NOT an underlying variable for a derivative?

a)

Interest rate

b)

Commodity price

c)

Accounting profit

d)

Market index

27.

High leverage in derivatives means:

a)

Low profit and low risk

b)

No margin requirement

c)

Small price change causes large gain/loss

d)

Guaranteed profit

28.

Equity index futures in India were introduced in:

a)

1997

b)

1999

c)

June 2000

d)

June 2003

29.

Stock options were introduced in India in:

a)

June 2001

b)

July 2001

c)

July 2003

d)

June 2000

30.

Which exchange deals mainly in agricultural commodities?

a)

NSE

b)

BSE

c)

MCX

d)

NCDEX

31.

In a spot market, settlement is:

a)

At maturity

b)

Daily

c)

Immediate or T+1/T+2

d)

Monthly

32.

Clearing involves:

a)

Buying assets

b)

Finalizing trades

c)

Auditing

d)

Valuation

33.

Counterparty risk is guaranteed by:

a)

Broker

b)

Trader

c)

Clearing house

d)

Exchange member

34.

One major role of clearing house is to:

a)

Fix prices

b)

Ensure delivery

c)

Issue shares

d)

Provide loans

35.

Forward contracts are settled:

a)

Daily

b)

Weekly

c)

At maturity

d)

Immediately

36.

SPAN margin is:

a)

Fixed margin

b)

Risk-based margin

c)

Optional margin

d)

Brokerage fee

37.

Futures usually expire on:

a)

First Monday

b)

Last Friday

c)

Last Thursday

d)

Last Sunday

38.

An option gives the holder:

a)

Obligation only

b)

Right and obligation

c)

Right but not obligation

d)

No right

39.

Option premium is paid by:

a)

Option writer

b)

Option buyer

c)

Exchange

d)

Clearing house

40.

LEAPS are options with maturity up to:

a)

1 year

b)

2 years

c)

3 years

d)

5 years

41.

A swaption is:

a)

Swap + future

b)

Swap + option

c)

Swap + forward

d)

Swap + bond

42.

Notional principal is:

a)

Exchanged amount

b)

Actual cash

c)

Imaginary amount

d)

Margin amount

43.

Contango occurs when:

a)

Forward price < Spot price

b)

Forward price = Spot price

c)

Forward price > Spot price

d)

Spot price is zero

44.

Ask price is the:

a)

Highest buying price

b)

Lowest selling price

c)

Spot price

d)

Future price

45.

Futures are usually closed out:

a)

At maturity

b)

Before maturity

c)

On delivery date only

d)

Quarterly

46.

Futures contracts have lower default risk than forwards because:

a)

Futures are cheaper

b)

Futures are long term

c)

Clearing house guarantees settlement

d)

Futures have no maturity

47.

If convenience yield is very high, the market condition is likely to be:

a)

Contango

b)

Backwardation

c)

Perfect equilibrium

d)

Arbitrage free

48.

Which factor mainly explains why forward price differs from future spot price?

a)

Market inefficiency

b)

Speculation

c)

Cost of carry

d)

Accounting policy

49.

Daily marking-to-market in futures primarily aims to:

a)

Increase trading volume

b)

Eliminate speculation

c)

Reduce accumulation of losses

d)

Increase leverage

50.

If the spot price is ₹5,000 and cost of carry is positive, the forward price will be:

a)

Equal to spot price

b)

Lower than spot price

c)

Higher than spot price

d)

Zero

51.

In arbitrage, profit exists only when:

a)

Risk is high

b)

Prices differ across markets

c)

Market is volatile

d)

Leverage is maximum

52.

A futures trader faces a margin call when:

a)

Market rises

b)

Initial margin increases

c)

Margin balance falls below maintenance margin

d)

Contract expires

53.

A company wants price certainty for raw material delivery after 6 months with customized terms. Best choice is:

a)

Futures

b)

Options

c)

Forward contract

d)

Swap

54.

Why are futures usually closed before maturity?

a)

Delivery is compulsory

b)

Liquidity is high and positions can be offset

c)

They have high transaction costs

d)

They are long-term contracts

55.

Which margin protects exchanges from extreme price movements?

a)

Initial margin

b)

Maintenance margin

c)

Exposure margin

d)

MTM margin

56.

Why are derivatives considered both risk management and risk-amplifying tools?

a)

Due to OTC trading

b)

Due to leverage

c)

Due to regulation

d)

Due to settlement cycle

57.

Which derivative instrument involves exchange of cash flows but not principal?

a)

Futures

b)

Forward

c)

Interest rate swap

d)

Option

58.

Why do most retail investors lose money in derivatives?

a)

Lack of regulation

b)

High brokerage

c)

Excessive leverage and speculation

d)

Low liquidity

59.

An option buyer’s maximum loss is limited to:

a)

Market price

b)

Strike price

c)

Premium paid

d)

Contract value

60.

The spot price of an asset is ₹10,000. Risk-free rate is 8% p.a. (simple interest). What is the 1-year forward price?

a)

₹10,400

b)

₹10,800

c)

₹10,000

d)

₹11,200

61.

Spot price = ₹5,000, risk-free rate = 10% p.a., time = 2 years. Forward price will be:

a)

₹5,500

b)

₹6,000

c)

₹6,500

d)

₹7,000

62.

Spot price of crude oil is ₹6,000. Risk-free rate = 7%, storage cost = 2%, convenience yield = 1%. What is the forward price after 1 year?

a)

₹6,240

b)

₹6,360

c)

₹6,480

d)

₹6,600

63.

A trader enters a long forward contract at ₹1,200. Spot price at maturity is ₹1,300. Payoff is:

a)

–₹100

b)

₹0

c)

₹100

d)

₹1,300

64.

A futures contract is bought at ₹2,000. Lot size is 50 units. Price falls to ₹1,960. MTM loss is:

a)

₹1,000

b)

₹2,000

c)

₹4,000

d)

₹8,000

65.

If initial margin is ₹40,000 and maintenance margin is ₹30,000, a margin call occurs when balance falls below:

a)

₹40,000

b)

₹35,000

c)

₹30,000

d)

₹25,000

66.

Initial margin = ₹60,000. Current margin balance = ₹28,000. Maintenance margin = ₹45,000. Amount to be deposited is:

a)

₹17,000

b)

₹32,000

c)

₹45,000

d)

₹60,000

67.

Futures price × Lot size gives:

a)

Margin value

b)

Payoff value

c)

Contract value

d)

Market value

68.

Maximum loss of an option buyer is:

a)

Strike price

b)

Spot price

c)

Premium paid

d)

Contract value

69.

According to IFRS 9, a derivative must be settled:

a)

Immediately

b)

At maturity only

c)

At a future date

d)

On demand

70.

High leverage in derivatives means:

a)

Low profit and low risk

b)

No margin requirement

c)

Small price change causes large gain/loss

d)

Guaranteed profit

71.

Which of the following is NOT an underlying variable for a derivative?

a)

Interest rate

b)

Commodity price

c)

Accounting profit

d)

Market index

72.

Which exchange deals mainly in agricultural commodities?

a)

NSE

b)

BSE

c)

MCX

d)

NCDEX

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