Practice Set 1 Welcome to WORLDONOMICS! Practice Set of Securities MarketsTotal Number of Questions: 40Time: 40 MinutesAll the best...Kind RegardsCMA Madhuri Kashyap & CMA Sandeep Kumar - Founder - International Navodaya Chamber of Commerce Name Email 1. What is a derivative? A financial instrument independent of other assets. A financial instrument whose value depends on the value of another asset. A fixed income security. A type of equityshare None 2. Which is not a type of derivative product? Forward contracts Swaps Bonds Options None 3. Which derivative is commonly used for managing interest rate risks? Options Swaps Futures Forwards None 4. What does 'zero-sum game' in derivatives mean? Both parties always gain. The gain of one party is exactly the loss of the other party. There is no financial exchange involved. The contract has no value. None 5. What is a forward contract? An exchange-traded derivative. An over-the-counter agreement to buy/sell an asset at a future date. A standardized futures contract. A government security. None 6. Which market structure is essential for futures contracts? Over-the-counter market Exchange-traded market Spot market Commodity market None 7. Which is true for options? Both parties are obligated to perform. The buyer has the right, but not the obligation, to buy or sell the underlying asset. It is only traded on OTC markets. It always involves physical delivery of the asset None 8. An option that can be exercised anytime before expiry is called European option American option Dynamic option Vanilla option None 9. What is the primary risk in forward contracts? Market risk Counterparty risk Liquidity risk Regulatory risk None 10. Which derivative type is used to lock in a currency exchange rate for future transactions? Currency forwards Currency options Commodity swaps Equity futures None 11. What is 'open interest'? The total number of outstanding derivative contracts The total volume traded in a day The difference between bid and ask prices The sum of margins held by traders None 12. Which ratio indicates market sentiment in options? Open interest ratio Price-to-earnings ratio Put-call ratio Volume ratio None 13. A futures contract is settled by: Immediate exchange of goods. Agreement between parties. Clearing corporation ensuring settlement. Forwarding to a third party None 14. A farmer wanting to lock in wheat prices for harvest would use: Stock options Commodity futures Index futures Currency swap None 15. The margin in derivatives trading: Eliminates all risks. Ensures partial security against counterparty risk. Is paid only by the seller. Is not required for options None 16. Hedging with derivatives involves: Speculating on future price movements Reducing the risk of adverse price movements Arbitraging price differences Manipulating prices for profit None 17. In an arbitrage strategy: The trader takes opposite positions in different markets The trader assumes high risk for high returns The trader holds a position without any underlying asset The trader uses forward contracts exclusively None 18. Physical settlement in derivatives is: The delivery of cash equivalent of the contract value The actual delivery of the underlying asset. The settlement of all contracts on the last trading day An automatic feature of all derivatives None 19. Which is a key feature of derivatives? They always reduce risk. They are leveraged instruments. They are free of counterparty risk They are only used for hedging None 20. Mark-to-market margins in futures ensure: Liquidity in the market. Daily settlement of profit and loss. Reduction in transaction costs. Only physical settlements None 21. What is a swap? A derivative where the buyer has an obligation to purchase the underlying asset An agreement to exchange cash flows between two parties A standardized contract traded on exchanges A spot market transaction None 22. The notional value of a derivative contract refers to The actual cash exchanged The agreed-upon value of the underlying asset. The trading fee for the contract The margin amount required None 23. In an equity futures contract, the underlying asset is:. Commodities like gold or wheat. A stock or equity index. A fixed income bond. A foreign currency None 24. What is a 'strike price' in options trading? The market price of the underlying asset. The price at which the option can be exercised. The price of the option premium The closing price of the underlying asset None 25. A call option gives the holder the right to: Sell the underlying asset at the strike price. Buy the underlying asset at the strike price. Both buy and sell the underlying asset. None of the above None 26. Which of the following is true about European options? They can be exercised anytime before expiration. They can only be exercised at expiration They are traded on OTC markets only They involve automatic physical delivery None 27. The difference between the market price and strike price in options is called: Premium Intrinsic value Time Value Notional value None 28. In a futures contract, the 'expiry date' refers to: The date by which the underlying must be delivered The date the contract was entered into. The last trading day of the contract. The date the price is determined None 29. What does the term 'underlying asset' mean in derivatives? The asset on which the derivative's value is based The margin deposited for trading The broker's fee for the transaction The profit or loss from the trade None 30. The main participants in the derivatives market are: Retail investors and auditors Speculators, hedgers, and arbitrageurs Governments and rating agencies. Regulators and fund managers None 31. What is 'leverage' in the context of derivatives? Using borrowed funds to trade securities Ability to control large positions with a small amount of capital The margin requirement for trading The cost of acquiring the underlying asset None 32. A trader buys a put option. This means the trader: Expects the price of the underlying asset to increase Expects the price of the underlying asset to decrease Expects the price to remain unchanged. Has an obligation to sell the asset None 33. Futures prices are generally: Higher than the spot price due to cost of carry Lower than the spot price due to demand Unrelated to the spot price The same as the spot price None 34. Which is an example of a commodity derivative? Equity options Gold futures Currency swaps Interest rate futures None 35. The premium in an options contract is: The price paid to acquire the option The profit from exercising the option The price difference between spot and futures The fixed return from the contract None 36. Which type of option becomes profitable when the underlying asset price decreases? Call option Put option Futures contract Arbitrage option None 37. The clearing corporation in derivatives trading: Ensures trades are executed. Guarantees the settlement of trades Sets margin requirements Determines strike prices None 38. Who regulates the derivatives market in India? Reserve Bank of India Securities and Exchange Board of India (SEBI) Ministry of Finance Stock Exchanges None 39. What is 'time decay' in options trading? The reduction in the option's value as it nears expiry The increase in value due to market movements The effect of margin adjustments on futures The price change in the underlying asset None 40. In a swap agreement, the cash flow exchange is based on: Future contracts Agreed-upon interest rates or currencies Spot market prices Physical delivery of assets None Time's upTime is Up!
