What distinguishes 'contingent claims' from 'forward commitments'?
Explanation
The key distinction is the 'obligation' vs 'right' nature of the contract.
Other questions
Which of the following best describes a forward contract?
In a futures contract, what is the role of the clearinghouse?
An investor has a futures account with an initial margin of 5,000 USD and a maintenance margin of 3,500 USD. If the account balance falls to 3,200 USD, how much must the investor deposit?
Which of the following instruments is considered a contingent claim?
For a European put option, when can the holder exercise the option?
An investor purchases a call option with a strike price of 50 USD for a premium of 5 USD. What is the breakeven price for the underlying asset?
What is the maximum loss for the buyer of a call option?
In a plain vanilla interest rate swap, what is typically exchanged?
Which term describes the total number of outstanding futures contracts that have not been closed or delivered?
A put option with a strike price of 100 USD is written on a stock currently trading at 90 USD. What is the intrinsic value of this option?
Which of the following is a characteristic of Over-The-Counter (OTC) derivatives markets?
What is the maximum profit for a short call position?
If a call option is 'out-of-the-money', what is the relationship between the spot price (St) and the strike price (X)?
Which instrument provides protection to a bondholder against a downgrade or default by the borrower?
What does the 'mark-to-market' process in futures contracts involve?
Which of the following creates a 'forward commitment'?
You sell a put option with a strike price of 80 USD for a premium of 4 USD. What is your breakeven price?
What defines a Bermudan option?
In a swap, what is the 'tenor'?
A trader is 'short' a forward contract. This means the trader:
Why might a market participant prefer a futures contract over a forward contract?
What is the settlement price in a futures market?
An investor holds a long call option. The strike price is 40 USD and the premium paid is 3 USD. If the stock price at expiration is 42 USD, what is the profit or loss?
Which derivative instrument typically requires no payment at initiation?
In a swap, if the net rate is positive for the fixed-rate payer, what happens?
What is the maximum loss for a writer (seller) of a naked call option?
Which type of swap is considered the simplest and most common?
For a put option, the condition 'In-the-money' applies when:
What is 'maintenance margin' in the context of futures?
Which party in a forward contract has the obligation to take delivery of the asset?
What is a 'credit spread option'?
What does the term 'variation margin' refer to?
If a European option and an American option on the same asset have the same strike price, what is true at expiration?
A call option is 'At-the-money' when:
What is the primary purpose of a Credit Default Swap (CDS)?
Which derivative allows for the 'netting' of payments so only one payment is made per period?
Calculate the intrinsic value of a call option with a strike of 50 USD when the underlying asset is 45 USD.
Who receives the premium in an option contract?
In a futures contract, if the variation margin is not deposited, what happens?
A long put position allows the investor to profit if:
Are swaps generally regulated or unregulated?
What is the maximum profit for a long put option?
Which of the following is NOT a feature of futures contracts?
In an interest rate swap where Party A pays 8 percent fixed and receives LIBOR + 2 percent, what is the net payment if LIBOR is 5 percent on a notional of 100,000 USD?
Which option position has the potential for infinite loss?
The term 'underlying asset' in a derivative contract refers to:
Are participants in the swap market typically individuals?
What happens if a futures investor has a balance above the initial margin?
Which of the following is true regarding default risk in forwards vs futures?