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Contract for Difference (CFD) – Objective Questions

Objective Questions

1. The striking difference on comparing CFD and futures is
a. CFDs have no expiry date.
b. CFDs are derivative contracts.
c. CFDs are of a speculative nature.
d. All of the above.

2. With CFDs, the investor can take
a. A long position.
b. A short position.
c. Either a long or a short position.
d. None of the above.

3. The commission on a CFD is calculated as a percentage based on
a. Performance of the underlying asset.
b. Performance of the market.
c. Value of the contract.
d. All of the above.

4. Interest on clear margin is paid to the investor based on
a. A percentage of the value of trade.
b. A preagreed rate of interest.
c. A percentage against marked-to-market calculated on daily basis.
d. None of the above.

5. The initial margin requirement varies upon
a. The contract between the buyer and seller.
b. The stock market concerned.
c. The underlying asset.
d. All of the above.

6. Settlement for CFDs happens through
a. Physical settlement of securities.
b. Cash.
c. Both cash and physical settlement of securities.
d. None of the above.

7. CFDs are traded
a. Over the counter.
b. On exchanges.
c. Both over the counter and on exchanges.
d. None of the above.

8. Funding costs are calculated based on
a. Average market price of the underlying asset.
b. Agreed percentage on the closing market value.
c. Agreed percentage on the opening market value.
d. None of the above.

9. For short positions in CFD contracts, the funding cost will be received by the
a. Investor.
b. Stock exchange.
c. Seller.
d. None of the above.

10. For long positions in CFD contracts, the funding cost will be received by the
a. Investor.
b. Stock exchange.
c. Seller.
d. None of the above.

11. CFDs are open-ended contracts with no fixed end date. So the investor of a long position can keep extending the contract by
a. Paying a fixed amount at end of every month.
b. Receiving interest based on an interest rate benchmark till he holds the position.
c. Paying interest towards over-night/financing charges based on an interest rate benchmark.
d. Carrying forward the position at no cost.
e. Paying a deposit amount agreed upon with the seller.

12. In CFD markets, though an investor does not own a share literally, he is still entitled to
a. Voting rights.
b. Participate in the annual shareholders meeting.
c. Receive trading recommendations from the exchange.
d. The benefits of corporate actions like dividends.
e. All of the above.

13. Which of the following are the advantages of CFDs?
a. Transparent pricing.
b. No expiry period.
c. Receive dividends on bought open positions.
d. Receive interest on sold open positions.
e. All the above.

14. When an investor buys a long CFD with a contract size of 1,000 at $90 per share and the margin deposit required to be paid is 10 percent, then what is the leverage amount that is being financed to the investor?
a. $90,000.
b. $9,000.
c. $99,000.
d. $81,000.
e. $8,100.

15. The following journal entry is passed when
Journal Entry
Date               Particulars                                                         Debit (US$)                Credit (US$)
1-Oct-X1      CFD Funding Cost Account                                    60.00
To CFD Margin Account                                                                          60.00
(Being the funding cost to carry over the long

position of CFD in respect to shares bought.)
a. The buyer of the CFD contract is financed with the leverage amount.
b. The interest is paid towards the overnight open position.
c. The seller of the CFD contract is financed with the leverage amount.
d. The interest for the overnight position is received.
e. The buyer of the CFD contract pays the margin amount.

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