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    This document contains a 15 question multiple choice quiz on financial derivatives and risk management. The questions cover topics such as types of risk in contracts, components of financial derivatives, uses of hedging to manage risk, features of options and futures contracts, and advantages of futures over forward contracts. An answer key is provided with the correct response for each question.

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    fd mcq 2

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    This document contains a 15 question multiple choice quiz on financial derivatives and risk management. The questions cover topics such as types of risk in contracts, components of financial derivatives, uses of hedging to manage risk, features of options and futures contracts, and advantages of futures over forward contracts. An answer key is provided with the correct response for each question.

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    266 views2 pages

    FD MCQ 2

    Uploaded by

    ruchi agrawal
    This document contains a 15 question multiple choice quiz on financial derivatives and risk management. The questions cover topics such as types of risk in contracts, components of financial derivatives, uses of hedging to manage risk, features of options and futures contracts, and advantages of futures over forward contracts. An answer key is provided with the correct response for each question.

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    of 2

    School of Distance Education

    MULTIPLE CHOICE QUESTIONS FOR MCOM (MC4C14)

    FINANCIAL DERIVATIVES & RISK MANAGEMENT

    1. …………. risk is a loss may occur from the failure of another party to perform according to
    the terms of a contract?
    a) Credit
    b) Currency
    c) Market
    d) Liquidity
    2. Financial derivatives includes?
    a) Stock
    b) Bonds
    c) Future
    d) None of these
    3. By hedging a portfolio ; a bank manager
    a) Reduces interest rate risk
    b) Increases re investment risk
    c) Increases exchange rate risk
    d) None of these
    4. A long contract requires that the investor
    a) Sell securities in the future
    b) Buy securities in the future
    c) Hedge in the future
    d) Close out his position in the future
    5. The disadvantage of swaps is that they
    a) Lack of liquidity
    b) Suffer from default risk
    c) Both A & B
    d) B only
    6. Hedging by buying an option
    a) Limits gain
    b) Limits losses
    c) Limits gain & losses
    d) Has no limit on losses
    7. All other things held constant premium on options will increase when the
    a) Exercise price increases
    b) Volatility of the underlying assets fails
    c) Term to maturity increases
    d) Both B & C

    Financial derivatives & risk management Page 1


    School of Distance Education

    8. An option allowing the owner to sell an asset at a future date is a ……………


    a) Put option
    b) Call option
    c) Forward option
    d) Future contract
    9. Composite value of traded stocks group of secondary market is classified as
    a) Stock index
    b) Primary index
    c) Stock market index
    d) Limited liability index
    10. ………….. is the minimum amount which must be remained in a margin account
    a) Maintenance margin
    b) Variation margin
    c) Initial margin
    d) None of these
    11. The number of future contract outstanding is called ………….?
    a) Liquidity
    b) Float
    c) Volume
    d) Turnover
    12. The amount paid for an option is the
    a) Strike price
    b) Discount
    c) Premium
    d) Yield
    13. Futures contracts are more successful than interest rate forward contracts because they :
    a) are less liquid
    b) have greater default risk
    c) are more liquid
    d) have an interest rate tied to the discount rate
    14. The payoffs for financial derivatives linked to
    a) Securities that will be issued in the future
    b) The volatality of interest rates
    c) previously issued securities
    d) none of the above.
    15. Which of the following is not a problem with an interest rate forward contract?
    a) Low interest rate
    b) default risk
    c) lack of liquidity
    d) finding a counterparty

    Answer key : 1.(a). 2.(c). 3 .(a). 4.(b). 5.(c). 6.(b). 7.(c). 8.(a). 9.(c). 10.(c). 11.(a). 12.(c)
    13. (c) 14. (c) 15. (a)

    Financial derivatives & risk management Page 2

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