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 involvementof 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 optioncontract 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 futurecontract
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 optionat 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 marginaccount 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 ata 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 withdifferent 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 beforematurity.
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
