Top 150+ Solved Financial Derivatives and Risk Management MCQ Questions Answer

From 61 to 75 of 115

Q. There is no arbitrage between the value of a European call and put options with same strike priceand 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

  • a. Put-call parity pricing relationship

Q. 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

  • b. Corridor swap

Q. 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

  • b. Digital swap

Q. 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

  • a. Constant maturity swap

Q. Which of the following is over the counter traded derivative?

a. Swaps

b. Options

c. Futures

d. All the above

  • a. Swaps

Q. 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

  • a. London inter bank offered rate

Q. The underlying amount in a swap contract

a. Basis

b. Notional principle

c. Vested amount

d. Capital

  • b. Notional principle

Q. 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.

  • b. the obligation to buy or sell the underlying asset.

Q. Options on futures contracts are referred to as

a. stock options.

b. futures options.

c. American options.

d. individual options.

  • b. futures options.

Q. 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

  • b. the obligation to sell the underlying security.

Q. The main advantage of using options on futures contractsrather than the futures contractsthemselvesis 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. interest rate risk is not controlled, but the possibility of gains is lost.

  • a. interest rate risk is controlled while preserving the possibility of gains.

Q. 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

  • b. to preserve the possibility for gains

Q. 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.

  • b. volatility of the underlying asset increases.

Q. 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.

  • a. remove the possibility of gains.

Q. The amount paid for an option is the

a. strike price.

b. premium.

c. discount.

d. commission.

  • b. premium.
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