Financial Derivatives and Risk Management solved MCQs

1 of 5

1. The payoffs for financial derivatives are linked to

a. securitiesthat will be issued in the future

B. the volatility of interest rates

c. previously issued securities

d. government regulations specifying allowable rates of return.

2. Financial Derivativesinclude

a. Stocks

B. Bonds

c. Futures

d. None of these

3. By hedging Portfolio a bank manager

a. Reducesinterest rate risk

B. Increases exchange rate risk

c. Increases reinvestment risk

d. Increase the probability of gains

4. The markets in which derivatives are trade is known as

a. Asset backed market

B. Cash market

c. Mortgage market

d. Derivative market

5. The contract where buyer and seller agrees to exchange asset on future date without the involvementof stock exchange

a. Options

B. Futures

c. Forwards

d. Swaps

6. The contract which gives the buyer the right but not obligation

a. Options

B. Futures

c. Swaps

d. Forwards

7. The buyer in the derivative contract is also known as

a. Deep in the contract

B. Middle in the contract

c. Short in the contract

d. Long in the contract

8. ETD stands for

a. Electronic traded serivatives

B. Equity traded derivatives

c. Exchange traded derivatives

d. Estimated trade delay

9. Market players who take benefits from difference in market prices are called

a. Speculators

B. Arbitrageurs

c. Hedgers

d. Spreaders

10. Short in derivative contract implies

a. Middle man

B. Buyer

c. Seller

d. Stock exchange

11. Which of the following is potentially obligated to sell an asset at a predetermined price

a. Put writer

B. A call writer

c. A put buyer

d. A call buyer

12. Which of the following contract is non standardised and suffers illiquidity most

a. Swaps

B. Forwards

c. Options

d. Futures

13. The initial amount paid by option buyer at the time of entering the contract

a. Option margin

B. Option premium

c. Option money

d. Option title

14. The difference between strike price and current market price of underlying security in optioncontract is

a. Time value

B. Intrinsic value

c. Exchange value

d. Trade value

15. The option contract which gives the buyer the right to buy the underlying asset is

a. Put option

B. Call option

c. European option

d. Bermudan option

16. The option contract which gives the seller the obligation to buy is

a. Put option

B. Call option

c. American option

d. European option

17. The option contract that can be exercised at any time before the maturity date is known as

a. European option

B. American option

c. Bermudan option

d. None of the above

18. The option contract which can be exercised on a few dates before the maturity date

a. Bermudan option

B. American option

c. European option

d. All the above

19. The amount to be deposited by buyer and seller of future contarct at the time of entering futurecontract

a. Future margin

B. Future premium

c. Future payoff

d. None of the above

20. The option contract that can be exercised only at the date of maturity is called

a. European option

B. American option

c. Bermudan option

d. Call option

21. Option strategy with combination of selling one put option at low strike price and buying put optionat a high strike price

a. Put bear spread

B. Call bear spread

c. Long call butterfly

d. Short call butterfly

22. An option that would lead to negative cash flow if it were exercised immediately is

a. In the money option

B. Out of the money option

c. At the money option

d. With money option

23. Asian option and look back options are types of

a. Vanilla option

B. Exotic option

c. Real option

d. Warrants

24. Which of the following is long dated option traded generally traded over the counter

a. Warrants

B. LEAPS

c. Baskets

d. Real option

25. A contract that confers the right to buy or sell foreign currency at a specified price at some future date

a. Currency forwards

B. Currency futures

c. Currency options

d. Currency Swaps

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