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Derivatives Theory – Objective Questions

Objective Questions

1. Futures contracts are traded
a. Over the counter.
b. On stock exchanges.
c. Through private placement.
d. All the above.

2. Forward contracts are traded
a. Over the counter.
b. On stock exchanges.
c. Through private placement.
d. All the above.

3. Which of the following products conform to strict guidelines of the stock exchange?
a. Futures.
b. Forwards.
c. Both futures and forwards.
d. None of the above.

4. Settlement of futures happens through
a. Cash.
b. Physical delivery of the underlying asset.
c. Either cash or physical delivery.
d. None of the above.

5. The marked-to-market process is followed for
a. Forwards contracts.
b. Futures contracts.
c. Both a and b.
d. None of the above.

6. Settlement of forward contracts happens through
a. Cash.
b. Physical delivery of the underlying asset.
c. Either cash or physical delivery.
d. None of the above.

7. In a futures contract the role of novation is played by the
a. Broker.
b. Stock exchange.
c. Buyer.
d. Seller.

8. Unwinding the futures contract takes place through
a. Entering into a separate agreement.
b. Taking an opposite position.
c. Canceling the agreement.
d. None of the above.

9. The intention for entering into the futures contract could be
a. Hedging.
b. Speculation.
c. Arbitrage profit.
d. All of the above.

10. Advantages of futures contracts include
a. Low transaction cost.
b. Performance guaranteed by the clearing-house.
c. Comprehensive regulation.
d. All of the above.

11. Disadvantages of futures contracts include
a. Low transaction cost.
b. Comprehensive regulation.
c. Liquidity issues.
d. All of the above.

12. The underlying asset in a futures contract could be
a. A single stock.
b. A group of stocks.
c. An index computed and published by the exchange.
d. All of the above.

13. The lot size of a futures contract is managed by
a. The buyer of the contract.
b. The seller of the contract.
c. The stock exchange concerned.
d. Any of the above.

14. Initial margin amount is paid by the
a. Buyer.
b. Seller.
c. Both buyer and seller.
d. Broker.

15. Performance of the stock market is measured through
a. FX rate fluctuations.
b. Stock indexes’ movement.
c. A high rate of dividend declared by the investee company.
d. None of the above.

16. Purchase and sale of similar products in two or more different markets in order to take advantage of price discrepancy is called
a. Hedging.
b. Speculation.
c. Parallel positioning.
d. Pyramiding.
e. Arbitrage.

17. In the futures market, margin call will be issued to the person holding the futures position to bring the account back up to the required level, when
a. Margin drops below the initial margin amount.
b. Margin drops below the fixed margin amount.
c. Margin drops below the variance margin amount.
d. Margin drops below the required margin amount.
e. Margin increases above the initial margin amount.

18. Stock price movements are driven partly by unsystematic risks. Which among the following falls in the category of unsystematic risks?
a. The country’s economic growth opportunities.
b. Government policies.
c. Foreign exchange transparency.
d. Budget announcements.
e. All of the above.

19. Usually the stock exchange manages to fix the lot size of a futures contract to help the
a. Exchanges, custodian, and administrators.
b. Buyers and sellers in the physical market.
c. Investors, hedgers, arbitrageurs, speculators.
d. Exchanges, brokers, and traders.
e. Both a and c.

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{ 1 comment… add one }

  • VINAY July 4, 2014, 12:16 am

    sir i need ans of these questions

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