Financial Derivatives and Risk Management Online MCQ Practice Set

Question: 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

Question: 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

Question: 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

Question: 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

Question: A fixed-for-floating interest rate swap with the floating rate leg tied to an index of daily Inter Bankrates or overnight

• A. Power swap
• B. Leveraged swap
• C. Quanto swap
• D. Overnight index swaps

Question: A long contract requires that the investor

• A. Sell securities in the future
• B. Buy securities in the future
• C. Hedge in the future
• D. Close out his position in the future

Question: 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

Question: 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

Question: A swap agreement that allows the purchaser to fix the duration of received flows on a swap.

A. Constant maturity swap

B. Accreting swap

C. Roller-coasterswap

D. Forward starting swap

Question: 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

Question: 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

Question: 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

Question: 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

Question: A swap where interest rate risk can be shifted by converting floating rate liability or vice versa

• A. Range accrual swaps
• B. Index amortizing swap
• C. Asian swaps
• D. Roller coaster swap

Question: 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

Question: All other things held constant premium on options will increase when the

• A. Exercise price increases
• B. Volatility of the underlying assets fails
• C. Term to maturity increases
• D. Both B & C

Question: 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

Question: An option allowing the owner to sell an asset at a future date is a___

• A. Put option
• B. Call option
• C. Forward option
• D. Future contract

Question: An option contract with underlying asset Commodities is

A. Commodity option

B. Currency option

C. Stock index option

D. None of the above

Question: 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