1. The payoffs for financial derivatives are linked to
Correct : C. previously issued securities
2. Financial Derivativesinclude
Correct : C. Futures
3. By hedging Portfolio a bank manager
Correct : A. Reducesinterest rate risk
4. The markets in which derivatives are trade is known as
Correct : D. Derivative market
5. The contract where buyer and seller agrees to exchange asset on future date without the involvement
of stock exchange
Correct : C. Forwards
6. The contract which gives the buyer the right but not obligation
Correct : A. Options
7. The buyer in the derivative contract is also known as
Correct : D. Long in the contract
8. ETD stands for
Correct : C. Exchange traded derivatives
9. Market players who take benefits from difference in market prices are called
Correct : B. Arbitrageurs
10. Short in derivative contract implies
Correct : C. Seller
11. Which of the following is potentially obligated to sell an asset at a predetermined price
Correct : A. Put writer
12. Which of the following contract is non standardised and suffers illiquidity most
Correct : B. Forwards
13. The initial amount paid by option buyer at the time of entering the contract
Correct : B. Option premium
14. The difference between strike price and current market price of underlying security in option
contract is
Correct : B. Intrinsic value
15. The option contract which gives the buyer the right to buy the underlying asset is
Correct : B. Call option
16. The option contract which gives the seller the obligation to buy is
Correct : A. Put option
17. The option contract that can be exercised at any time before the maturity date is known as
Correct : B. American option
18. The option contract which can be exercised on a few dates before the maturity date
Correct : A. Bermudan option
19. The amount to be deposited by buyer and seller of future contarct at the time of entering future
contract
Correct : A. Future margin
20. The option contract that can be exercised only at the date of maturity is called
Correct : 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
Correct : A. Put bear spread
22. An option that would lead to negative cash flow if it were exercised immediately is
Correct : B. Out of the money option
23. Asian option and look back options are types of
Correct : B. Exotic option
24. Which of the following is long dated option traded generally traded over the counter
Correct : A. Warrants
25. A contract that confers the right to buy or sell foreign currency at a specified price at some future date
Correct : C. Currency options
26. An option contract with underlying asset commoditiesis
Correct : A. Commodity option
27. The risk arising from counterparty’sfailure to meet its fianacial obligation is
Correct : D. Credit risk
28. The difference between the future price and cash price is
Correct : 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
Correct : C. Variation margin
30. The system of daily settlement in the future market is
Correct : A. Marking to market
31. The test used to check the validity of VaR estimate
Correct : 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.
Correct : A. VaR
33. Which among the following is not a commodity future exchange
Correct : B. NSDL
34. The tendency of spot price and future price to come together is
Correct : B. Principle of convergence
35. The condition where future prices are greater than cashprice resulting in positive basis is
Correct : B. Contango
36. ------------ are formed by using the options on the same asset with same strike price but with
different expiration dates
Correct : C. Calendar spread
37. The difference between option premium and intrinsic value
Correct : A. Time value
38. Option pricing model developed John Cox,Stephen Ross and Mark Rubinstein is
Correct : A. Binomial Option pricing Model
39. The type of swap agreement which gives seller the chance to terminate swap at any time before
maturity.
Correct : C. Putable swap
40. When Swap is combined with Option it is called
Correct : A. Swaption
41. What is the time value of option at expiration
Correct : A. Zero
42. A option that provides a fixed payoff depending on the fulfilment of some condition
Correct : C. Binary option
43. Which of the following is a way to settle option contracts
Correct : D. All the above
44. The date on which option expires is known as
Correct : B. Expiration date
45. The risk that arises due to adverse movementsin the price of a financial asset or commodity
Correct : B. Market risk
46. The persons who enter into derivative contract with the objective of covering risk
Correct : A. Hedgers
47. The persons who enter into derivative contract in anticipation of lower expected return at the
reduced risk
Correct : C. Spreaders
48. The approach which assumesthat the expected basis would be equal to zero
Correct : C. Expectation hypothesis
49. The type of hedge used by those who are short on the underlying asset
Correct : A. Long hedge
50. when the gains or losses in the futures do not exactly offset the loss/gainsin the physical market
Correct : 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
Correct : D. Perfect hedge
52. If the maturity of futures contract mismatchesfuture hedging is known as
Correct : B. Delta hedge
53. When the maturity matches but the size of the futures does not match, the hedge can be
Correct : C. Cross hedge
54. The total number of futures/option contracts outstanding at the close of the previous day’s trading is
Correct : A. Open interest
55. Which of the following is Non varience based models of computation of VaR
Correct : D. All the above
56. The person who takes short position in option contract
Correct : A. Option writer
57. The option contract whose underlying asset consist of stock market indices
Correct : B. Stock index option
58. Which of the following is not used in Future pricing
Correct : D. Binomial model
59. The option contract that would lead to zero cash flow if it were exercised immediately
Correct : A. At the money option
60. The option contract that would lead to positive cash flow if it were exercised immediately
Correct : 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
Correct : A. Put-call parity pricing relationship
62. A swap that takes into consideration daily variation of market rates within specific range.
Correct : B. Corridor swap
63. A swap that pays certain fixed amount if the rate is above or below a certain level.
Correct : B. Digital swap
64. A swap agreement that allows the purchaser to fix the duration of received flows on aswap.
Correct : A. Constant maturity swap
65. Which of the following is over the counter traded derivative?
Correct : A. Swaps
66. LIBOR stands for
Correct : A. London inter bank offered rate
67. The underlying amount in a swap contract
Correct : B. Notional principle
68. The seller of an option has the
Correct : B. the obligation to buy or sell the underlying asset.
69. Options on futures contracts are referred to as
Correct : B. futures options.
70. A call option gives the seller
Correct : B. the obligation to sell the underlying security.
71. The main advantage of using options on futures contractsrather than the futures contracts
themselvesis that
Correct : 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
Correct : B. to preserve the possibility for gains
73. All other things held constant, premiums on options will increase when the
Correct : 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
Correct : A. remove the possibility of gains.
75. The amount paid for an option is the
Correct : B. premium.
76. Forward contracts are risky because they
Correct : D. both (a) and (b) are true.
77. A contract that requires the investor to sell securities on a future date is called a
Correct : B. long contract
78. Hedging risk for a long position is accomplished by
Correct : B. taking a short position.
79. Hedging risk for a short position is accomplished by
Correct : A. taking a long position.
80. A disadvantage of a forward contract is that
Correct : D. all of the above.
81. Futures markets have grown rapidly because futures
Correct : D. d. all of the above
82. If you sold a short contract on financial futures you hope interest rates
Correct : A. rise.
83. Which of the following is not a financial derivative?
Correct : 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
Correct : A. Forward starting swap
85. A swap where interest rate risk can be shifted byconverting floating rate liability or vice versa
Correct : A. Range accrual swaps
86. A swap where principal amount decreases over prespecified points of time over the life time of swap
Correct : 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
Correct : 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.
Correct : A. Range accrual swaps
89. Standardized futures contracts exist for all of the following underlying assets except:
Correct : C. common stocks.
90. Which of the following does the most to reduce default risk for futures contracts?
Correct : A. Marking to market.
91. Which of the following is most similar to a stock broker?
Correct : D. Futures commission merchant.
92. Using futures contracts to transfer price risk is called:
Correct : A. hedging.
93. Which of the following is best described as selling a synthetic asset and simultaneously
buying the actual asset?
Correct : B. Arbitrage.
94. Which of the following has the right to sell an asset at a predetermined price?
Correct : B. A put buyer.
95. Which of the following is potentially obligated to sell an asset at a predetermined price?
Correct : D. A call writer.
96. Which of the following actions will not close a long position in a call option?
Correct : 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?
Correct : A. Selling a call.
98. Which of the following investment strategies has unlimited profit potential?
Correct : 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
Correct : C. Power swap
100. A swap agreement that pays and resets at the same time.