McqMate
| 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. |
| Answer» C. previously issued securities | |
| 2. |
Financial Derivativesinclude |
| A. | Stocks |
| B. | Bonds |
| C. | Futures |
| D. | None of these |
| Answer» C. Futures | |
| 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 |
| Answer» A. Reducesinterest rate risk | |
| 4. |
The markets in which derivatives are trade is known as |
| A. | Asset backed market |
| B. | Cash market |
| C. | Mortgage market |
| D. | Derivative market |
| Answer» D. Derivative market | |
| 5. |
The contract where buyer and seller agrees to exchange asset on future date without the involvement of stock exchange |
| A. | Options |
| B. | Futures |
| C. | Forwards |
| D. | Swaps |
| Answer» C. Forwards | |
| 6. |
The contract which gives the buyer the right but not obligation |
| A. | Options |
| B. | Futures |
| C. | Swaps |
| D. | Forwards |
| Answer» A. Options | |
| 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 |
| Answer» 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 |
| Answer» C. Exchange traded derivatives | |
| 9. |
Market players who take benefits from difference in market prices are called |
| A. | Speculators |
| B. | Arbitrageurs |
| C. | Hedgers |
| D. | Spreaders |
| Answer» B. Arbitrageurs | |
| 10. |
Short in derivative contract implies |
| A. | Middle man |
| B. | Buyer |
| C. | Seller |
| D. | Stock exchange |
| Answer» C. Seller | |
| 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 |
| Answer» A. Put writer | |
| 12. |
Which of the following contract is non standardised and suffers illiquidity most |
| A. | Swaps |
| B. | Forwards |
| C. | Options |
| D. | Futures |
| Answer» B. Forwards | |
| 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 |
| Answer» B. Option premium | |
| 14. |
The difference between strike price and current market price of underlying security in option contract is |
| A. | Time value |
| B. | Intrinsic value |
| C. | Exchange value |
| D. | Trade value |
| Answer» B. Intrinsic 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 |
| Answer» B. Call 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 |
| Answer» A. Put 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 |
| Answer» B. American option | |
| 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 |
| Answer» A. Bermudan option | |
| 19. |
The amount to be deposited by buyer and seller of future contarct at the time of entering future contract |
| A. | Future margin |
| B. | Future premium |
| C. | Future payoff |
| D. | None of the above |
| Answer» A. Future margin | |
| 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 |
| Answer» A. European option | |
| 21. |
Option strategy with combination of selling one put option at low strike price and buying put option at a high strike price |
| A. | Put bear spread |
| B. | Call bear spread |
| C. | Long call butterfly |
| D. | Short call butterfly |
| Answer» A. Put bear spread | |
| 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 |
| Answer» B. Out of the money option | |
| 23. |
Asian option and look back options are types of |
| A. | Vanilla option |
| B. | Exotic option |
| C. | Real option |
| D. | Warrants |
| Answer» B. Exotic option | |
| 24. |
Which of the following is long dated option traded generally traded over the counter |
| A. | Warrants |
| B. | LEAPS |
| C. | Baskets |
| D. | Real option |
| Answer» A. Warrants | |
| 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 |
| Answer» C. Currency options | |
| 26. |
An option contract with underlying asset commoditiesis |
| A. | Commodity option |
| B. | Currency option |
| C. | Stock index option |
| D. | None of the above |
| Answer» A. Commodity option | |
| 27. |
The risk arising from counterparty’sfailure to meet its fianacial obligation is |
| A. | Market risk |
| B. | Liquidity risk |
| C. | Operation risk |
| D. | Credit risk |
| Answer» D. Credit risk | |
| 28. |
The difference between the future price and cash price is |
| A. | Basis |
| B. | Margin |
| C. | Premium |
| D. | Strike price |
| Answer» A. Basis | |
| 29. |
The additional amount that has to deposited by the trader with broker to bring the balance of margin account to initial margin |
| A. | Initial margin |
| B. | Maintenance margin |
| C. | Variation margin |
| D. | Additional margin |
| Answer» C. Variation margin | |
| 30. |
The system of daily settlement in the future market is |
| A. | Marking to market |
| B. | Market making |
| C. | Market backwardation |
| D. | Market moving |
| Answer» A. Marking to market | |
| 31. |
The test used to check the validity of VaR estimate |
| A. | Black testing |
| B. | Back testing |
| C. | Back end test |
| D. | Back to back test |
| Answer» A. Black testing | |
| 32. |
Which measure is used to indicate the maximum loss that an investor could incur on an exposure at a point in time, determined at a certain confidence level. |
| A. | VaR |
| B. | VaM |
| C. | VaG |
| D. | VaK |
| Answer» A. VaR | |
| 33. |
Which among the following is not a commodity future exchange |
| A. | NCDEX |
| B. | NSDL |
| C. | NMCE |
| D. | MCX |
| Answer» B. NSDL | |
| 34. |
The tendency of spot price and future price to come together is |
| A. | Principle of divergence |
| B. | Principle of convergence |
| C. | Principle of backwardation |
| D. | Principle of contango |
| Answer» B. Principle of convergence | |
| 35. |
The condition where future prices are greater than cashprice resulting in positive basis is |
| A. | Normal backwardation |
| B. | Contango |
| C. | Expectation hypothesis |
| D. | Cost of carry |
| Answer» B. Contango | |
| 36. |
------------ are formed by using the options on the same asset with same strike price but with different expiration dates |
| A. | Box spread |
| B. | Ratio spread |
| C. | Calendar spread |
| D. | Call put spread |
| Answer» C. Calendar spread | |
| 37. |
The difference between option premium and intrinsic value |
| A. | Time value |
| B. | Intrinsic value |
| C. | Money value |
| D. | Premium |
| Answer» A. Time value | |
| 38. |
Option pricing model developed John Cox,Stephen Ross and Mark Rubinstein is |
| A. | Binomial Option pricing Model |
| B. | Black schools model |
| C. | Cost of carry model |
| D. | Backwardation model |
| Answer» A. Binomial Option pricing Model | |
| 39. |
The type of swap agreement which gives seller the chance to terminate swap at any time before maturity. |
| A. | Coupan swap |
| B. | Callable swap |
| C. | Putable swap |
| D. | Rate capped swap |
| Answer» C. Putable swap | |
| 40. |
When Swap is combined with Option it is called |
| A. | Swaption |
| B. | Forwad Swaps |
| C. | Swap options |
| D. | All the above |
| Answer» A. Swaption | |
| 41. |
What is the time value of option at expiration |
| A. | Zero |
| B. | Same as strike price |
| C. | Same as exercise price |
| D. | Same as market price |
| Answer» A. Zero | |
| 42. |
A option that provides a fixed payoff depending on the fulfilment of some condition |
| A. | Asian option |
| B. | Barrier option |
| C. | Binary option |
| D. | Lookback option |
| Answer» C. Binary option | |
| 43. |
Which of the following is a way to settle option contracts |
| A. | By exercising |
| B. | By letting option expire |
| C. | By offsetting |
| D. | All the above |
| Answer» D. All the above | |
| 44. |
The date on which option expires is known as |
| A. | Exercise date |
| B. | Expiration date |
| C. | Contract date |
| D. | Maturity date |
| Answer» B. Expiration date | |
| 45. |
The risk that arises due to adverse movementsin the price of a financial asset or commodity |
| A. | Credit risk |
| B. | Market risk |
| C. | Legal risk |
| D. | Liquidty risk |
| Answer» B. Market risk | |
| 46. |
The persons who enter into derivative contract with the objective of covering risk |
| A. | Hedgers |
| B. | Speculators |
| C. | Spreaders |
| D. | Arbitrageurs |
| Answer» A. Hedgers | |
| 47. |
The persons who enter into derivative contract in anticipation of lower expected return at the reduced risk |
| A. | Hedgers |
| B. | Speculators |
| C. | Spreaders |
| D. | Arbitrageurs |
| Answer» C. Spreaders | |
| 48. |
The approach which assumesthat the expected basis would be equal to zero |
| A. | Normal backwardation approach |
| B. | Contago |
| C. | Expectation hypothesis |
| D. | None of the above |
| Answer» C. Expectation hypothesis | |
| 49. |
The type of hedge used by those who are short on the underlying asset |
| A. | Long hedge |
| B. | Short hedge |
| C. | Perfect hedge |
| D. | Imperfect hedge |
| Answer» A. Long hedge | |
| 50. |
when the gains or losses in the futures do not exactly offset the loss/gainsin the physical market |
| A. | Long hedge |
| B. | Short hedge |
| C. | Perfect hedge |
| D. | Imperfect hedge |
| Answer» D. Imperfect hedge | |
| 51. |
The hedging strategy which results in exact offsetting of gains and losses in the futures market and physical market is known as |
| A. | Short hedge |
| B. | Long hedge |
| C. | Imperfect hedge |
| D. | Perfect hedge |
| Answer» D. Perfect hedge | |
| 52. |
If the maturity of futures contract mismatchesfuture hedging is known as |
| A. | Short hedge |
| B. | Delta hedge |
| C. | Cross hedge |
| D. | Imperfect hedge |
| Answer» B. Delta hedge | |
| 53. |
When the maturity matches but the size of the futures does not match, the hedge can be |
| A. | Long hedge |
| B. | Short hedge |
| C. | Cross hedge |
| D. | Delta cross hedge |
| Answer» C. Cross hedge | |
| 54. |
The total number of futures/option contracts outstanding at the close of the previous day’s trading is |
| A. | Open interest |
| B. | Outstanding contract |
| C. | Closed interest |
| D. | None of the above |
| Answer» A. Open interest | |
| 55. |
Which of the following is Non varience based models of computation of VaR |
| A. | Historical method |
| B. | Monte carlo simulation |
| C. | Delta noramal |
| D. | All the above |
| Answer» D. All the above | |
| 56. |
The person who takes short position in option contract |
| A. | Option writer |
| B. | Option purchaser |
| C. | Option investor |
| D. | None of the above |
| Answer» A. Option writer | |
| 57. |
The option contract whose underlying asset consist of stock market indices |
| A. | Stock option |
| B. | Stock index option |
| C. | Currency option |
| D. | Equity option |
| Answer» B. Stock index option | |
| 58. |
Which of the following is not used in Future pricing |
| A. | Cost of carry model |
| B. | Expectation model |
| C. | CAPM |
| D. | Binomial model |
| Answer» D. Binomial model | |
| 59. |
The option contract that would lead to zero cash flow if it were exercised immediately |
| A. | At the money option |
| B. | In the money option |
| C. | Out of the money option |
| D. | None of the above |
| Answer» A. At the money option | |
| 60. |
The option contract that would lead to positive cash flow if it were exercised immediately |
| A. | In the money option |
| B. | Out of the money option |
| C. | At the money option |
| D. | None of the above |
| Answer» A. In the money option | |
| 61. |
There is no arbitrage between the value of a European call and put options with same strike price and expiry date on the same underlying asset. This is shown by |
| A. | Put-call parity pricing relationship |
| B. | Principle of convergence |
| C. | Principle of divergence |
| D. | All the above |
| Answer» A. Put-call parity pricing relationship | |
| 62. |
A swap that takes into consideration daily variation of market rates within specific range. |
| A. | Barrier swap |
| B. | Corridor swap |
| C. | Digital swap |
| D. | Asian swap |
| Answer» B. Corridor swap | |
| 63. |
A swap that pays certain fixed amount if the rate is above or below a certain level. |
| A. | Barrier swap |
| B. | Digital swap |
| C. | Chooser swap |
| D. | Corridor swap |
| Answer» B. Digital swap | |
| 64. |
A swap agreement that allows the purchaser to fix the duration of received flows on aswap. |
| A. | Constant maturity swap |
| B. | Accreting swap |
| C. | Roller-coasterswap |
| D. | Forward starting swap |
| Answer» A. Constant maturity swap | |
| 65. |
Which of the following is over the counter traded derivative? |
| A. | Swaps |
| B. | Options |
| C. | Futures |
| D. | All the above |
| Answer» A. Swaps | |
| 66. |
LIBOR stands for |
| A. | London inter bank offered rate |
| B. | Local industrial bank offered rate |
| C. | Local interbank offered rate |
| D. | London industrial bank offered rate |
| Answer» A. London inter bank offered rate | |
| 67. |
The underlying amount in a swap contract |
| A. | Basis |
| B. | Notional principle |
| C. | Vested amount |
| D. | Capital |
| Answer» B. Notional principle | |
| 68. |
The seller of an option has the |
| A. | right to buy or sell the underlying asset. |
| B. | the obligation to buy or sell the underlying asset. |
| C. | ability to reduce transaction risk. |
| D. | right to exchange one payment stream for another. |
| Answer» B. the obligation to buy or sell the underlying asset. | |
| 69. |
Options on futures contracts are referred to as |
| A. | stock options. |
| B. | futures options. |
| C. | American options. |
| D. | individual options. |
| Answer» B. futures options. | |
| 70. |
A call option gives the seller |
| A. | the right to sell the underlying security. |
| B. | the obligation to sell the underlying security. |
| C. | the right to buy the underlying security. |
| D. | the obligation to buy the underlying security |
| Answer» B. the obligation to sell the underlying security. | |
| 71. |
The main advantage of using options on futures contractsrather than the futures contracts themselvesis that |
| A. | interest rate risk is controlled while preserving the possibility of gains. |
| B. | interest rate risk is controlled, while removing the possibility of losses. |
| C. | interest rate risk is not controlled, but the possibility of gains is preserv |
| D. | d. interest rate risk is not controlled, but the possibility of gains is lost. |
| Answer» A. interest rate risk is controlled while preserving the possibility of gains. | |
| 72. |
The main reason to buy an option on a futures contract rather than the futures contract is |
| A. | to reduce transaction cost |
| B. | to preserve the possibility for gains |
| C. | to limit losses |
| D. | remove the possibility for gains |
| Answer» B. to preserve the possibility for gains | |
| 73. |
All other things held constant, premiums on options will increase when the |
| A. | exercise price increases. |
| B. | volatility of the underlying asset increases. |
| C. | term to maturity decreases. |
| D. | futures price increases. |
| Answer» B. volatility of the underlying asset increases. | |
| 74. |
The main disadvantage of hedging with futures contracts as compared to options on futures contractsis that futures |
| A. | remove the possibility of gains. |
| B. | increase the transactions cost. |
| C. | are not as an effective a hedge. |
| D. | do not remove the possibility of losses. |
| Answer» A. remove the possibility of gains. | |
| 75. |
The amount paid for an option is the |
| A. | strike price. |
| B. | premium. |
| C. | discount. |
| D. | commission. |
| Answer» B. premium. | |
| 76. |
Forward contracts are risky because they |
| A. | are subject to lack of liquidity |
| B. | are subject to default risk. |
| C. | hedge a portfolio. |
| D. | both (a) and (b) are true. |
| Answer» D. both (a) and (b) are true. | |
| 77. |
A contract that requires the investor to sell securities on a future date is called a |
| A. | short contract |
| B. | long contract |
| C. | hedge |
| D. | micro hedge |
| Answer» B. long contract | |
| 78. |
Hedging risk for a long position is accomplished by |
| A. | taking another long position. |
| B. | taking a short position. |
| C. | taking additional long and short positionsin equal amounts. |
| D. | taking a neutral position. |
| Answer» B. taking a short position. | |
| 79. |
Hedging risk for a short position is accomplished by |
| A. | taking a long position. |
| B. | taking another short position. |
| C. | taking additional long and short positionsin equal amounts. |
| D. | taking a neutral position. |
| Answer» A. taking a long position. | |
| 80. |
A disadvantage of a forward contract is that |
| A. | it may be difficult to locate a counterparty. |
| B. | the forward market suffers from lack of liquidity. |
| C. | these contracts have default risk. |
| D. | all of the above. |
| Answer» D. all of the above. | |
| 81. |
Futures markets have grown rapidly because futures |
| A. | are standardized. |
| B. | have lower default risk. |
| C. | are liqu |
| D. | d. all of the above |
| Answer» D. d. all of the above | |
| 82. |
If you sold a short contract on financial futures you hope interest rates |
| A. | rise. |
| B. | fall. |
| C. | are stable. |
| D. | fluctuate. |
| Answer» A. rise. | |
| 83. |
Which of the following is not a financial derivative? |
| A. | Stock |
| B. | Futures |
| C. | Options |
| D. | Forward contract |
| Answer» A. Stock | |
| 84. |
A swap agreement created through the synthesis of two swaps differing in duration for the purpose of fulfilling the specific time frame needed of an investor |
| A. | Forward starting swap |
| B. | Roller coaster swap |
| C. | Amortizing swap |
| D. | Accreting swap |
| Answer» A. Forward starting swap | |
| 85. |
A swap where interest rate risk can be shifted byconverting floating rate liability or vice versa |
| A. | Range accrual swaps |
| B. | Index amortizing swap |
| C. | Asian swaps |
| D. | Roller coaster swap |
| Answer» A. Range accrual swaps | |
| 86. |
A swap where principal amount decreases over prespecified points of time over the life time of swap |
| A. | Forward starting swap |
| B. | Roller coaster swap |
| C. | Amortizing swap |
| D. | Asian swaps |
| Answer» A. Forward starting swap | |
| 87. |
A fixed-for-floating interest rate swap with the floating rate leg tied to an index of daily interbank rates or overnight |
| A. | Power swap |
| B. | Leveraged swap |
| C. | Quanto swap |
| D. | Overnight index swaps |
| Answer» D. Overnight index swaps | |
| 88. |
Swaps whose notional accretes when a certain floating rate,often a different rate from the one used to pay,lies within a range. |
| A. | Range accrual swaps |
| B. | Asian swaps |
| C. | Index amortizing swap |
| D. | Bermudan swaps |
| Answer» A. Range accrual swaps | |
| 89. |
Standardized futures contracts exist for all of the following underlying assets except: |
| A. | stock indexes. |
| B. | gold. |
| C. | common stocks. |
| D. | Treasury bonds. |
| Answer» C. common stocks. | |
| 90. |
Which of the following does the most to reduce default risk for futures contracts? |
| A. | Marking to market. |
| B. | Flexible delivery arrangements. |
| C. | High liquidity. |
| D. | Credit checks for both buyers and sellers. |
| Answer» A. Marking to market. | |
| 91. |
Which of the following is most similar to a stock broker? |
| A. | Pit trader. |
| B. | Local. |
| C. | Floor broker. |
| D. | Futures commission merchant. |
| Answer» D. Futures commission merchant. | |
| 92. |
Using futures contracts to transfer price risk is called: |
| A. | hedging. |
| B. | diversifying |
| C. | arbitrage. |
| D. | speculating. |
| Answer» A. hedging. | |
| 93. |
Which of the following is best described as selling a synthetic asset and simultaneously buying the actual asset? |
| A. | Diversifying. |
| B. | Arbitrage. |
| C. | Speculating. |
| D. | Hedging. |
| Answer» B. Arbitrage. | |
| 94. |
Which of the following has the right to sell an asset at a predetermined price? |
| A. | A put writer. |
| B. | A put buyer. |
| C. | A call buyer. |
| D. | A call writer. |
| Answer» B. A put buyer. | |
| 95. |
Which of the following is potentially obligated to sell an asset at a predetermined price? |
| A. | A put buyer. |
| B. | A call buyer. |
| C. | A put writer. |
| D. | A call writer. |
| Answer» D. A call writer. | |
| 96. |
Which of the following actions will not close a long position in a call option? |
| A. | Selling a call with the same strike price, expiration, and underlying asset. |
| B. | Buying a put with the same strike price, expiration, and underlying asset. |
| C. | Exercising the call. |
| D. | Allowing the call to expire. |
| Answer» B. Buying a put with the same strike price, expiration, and underlying asset. | |
| 97. |
Which of the following strategies will be profitable if the price of the underlying asset is expected to decrease? |
| A. | Selling a call. |
| B. | Selling a put. |
| C. | Buying a put. |
| D. | Buying a call. |
| Answer» A. Selling a call. | |
| 98. |
Which of the following investment strategies has unlimited profit potential? |
| A. | Writing a call. |
| B. | Bull spread. |
| C. | Protective put. |
| D. | Covered call. |
| Answer» C. Protective put. | |
| 99. |
A swap deal wherein floating rate payer pays the floating rate square or cubic or any power of the rate to the counter party |
| A. | Leveraged swap |
| B. | Quanto swap |
| C. | Power swap |
| D. | Overnight index swap |
| Answer» C. Power swap | |
| 100. |
A swap agreement that pays and resets at the same time. |
| A. | Constant maturity swap |
| B. | In-arrear swap |
| C. | Roller coaster swap |
| D. | Amortizing swap |
| Answer» B. In-arrear swap | |
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