Reading 45: Derivative Markets and Instruments

Which of the following best defines a derivative security?

Which of the following is a characteristic of exchange-traded derivatives compared to over-the-counter derivatives?

Which of the following instruments is classified as a forward commitment?

A contingent claim differs from a forward commitment in that a contingent claim:

In a forward contract, the party who agrees to buy the financial asset has a:

Which of the following statements about cash-settled forward contracts is correct?

A primary difference between futures contracts and forward contracts is that futures contracts:

The settlement price of a futures contract is:

In futures markets, the number of contracts outstanding at any given time is called:

The clearinghouse in futures markets guarantees traders will honor obligations by:

In futures trading, the 'initial margin' is best described as:

A futures trader has an account with an initial margin of $10,000 and a maintenance margin of $7,500. If the margin balance falls to $7,000 due to market movements, the trader must deposit:

If a futures contract price changes by an amount that exceeds the daily price limit, the price is said to be:

A swap contract is best described as:

In a plain vanilla interest rate swap, the 'pay-floating' party:

The 'tenor' of a swap refers to:

Which of the following derivatives is a contingent claim?

The buyer of a call option has the:

An American option differs from a European option in that the American option:

Which of the following positions has an obligation to sell the underlying asset if exercised?

A credit default swap (CDS) is essentially:

Consider a call option with a premium of $5 and a strike price of $50. If the stock price at expiration is $58, the profit to the buyer is:

For a put option with a premium of $4 and a strike price of $40, the breakeven price for the buyer is:

The maximum loss for the writer (seller) of a call option is:

The maximum gain for the buyer of a put option is limited to:

Options trading is described as a zero-sum game because:

A credit spread option typically provides a payoff when:

One benefit of derivative markets is that they:

Arbitrage is best defined as:

According to the law of one price, two portfolios with identical future payoffs must have:

Which of the following describes a 'basis swap'?

In futures markets, 'maintenance margin' is the:

A wheat farmer sells wheat futures to reduce uncertainty about the harvest price. This trader is acting as a:

If a futures trader receives a margin call, they must deposit funds to bring the balance up to the:

An option is 'in the money' if:

For a call option, the breakeven price for the seller is:

Which of the following statements about option premiums is correct?

An investor buys a put option with a strike of $50 for a premium of $3. If the stock price is $40 at expiration, the net profit is:

The 'tick size' in a futures contract refers to:

Which of the following is an example of a 'forward commitment'?

If a portfolio of assets produces a risk-free return, arbitrage ensures that this return must equal:

A Non-Deliverable Forward (NDF) is effectively the same as:

In the context of options, the exercise price is also known as the:

Which derivative instrument typically requires no payment at initiation?

Marking to market in futures accounts occurs:

If a call option is 'out of the money', its value at expiration is:

A major criticism of derivatives is that they:

Which participant acts as the buyer to every seller and seller to every buyer in futures markets?

For a long forward position, the value at expiration is equal to:

If a stock is trading at $55 and a call option with a strike of $50 costs $5, the time value of the option is: