Top 150+ Solved Financial Derivatives and Risk Management MCQ Questions Answer
Q. 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.
Q. 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
Q. 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.
Q. 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.
Q. 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.
Q. Futures markets have grown rapidly because futures
a. are standardized.
b. have lower default risk.
c. are liqu
d. all of the above
Q. If you sold a short contract on financial futures you hope interest rates
a. rise.
b. fall.
c. are stable.
d. fluctuate.
Q. Which of the following is not a financial derivative?
a. Stock
b. Futures
c. Options
d. Forward contract
Q. A swap agreement created through the synthesis of two swaps differing in duration for the purposeof fulfilling the specific time frame needed of an investor
a. Forward starting swap
b. Roller coaster swap
c. Amortizing swap
d. Accreting swap
Q. 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
Q. 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
Q. A fixed-for-floating interest rate swap with the floating rate leg tied to an index of daily interbankrates or overnight
a. Power swap
b. Leveraged swap
c. Quanto swap
d. Overnight index swaps
Q. Swaps whose notional accretes when a certain floating rate,often a different rate from the one usedto pay,lies within a range.
a. Range accrual swaps
b. Asian swaps
c. Index amortizing swap
d. Bermudan swaps
Q. Standardized futures contracts exist for all of the following underlying assets except:
a. stock indexes.
b. gold.
c. common stocks.
d. Treasury bonds.
Q. 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.