Financial Derivatives And Risk Management Set 5

Master of Commerce (M.com)

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This set of Financial Derivatives and Risk Management Multiple Choice Questions & Answers (MCQs) focuses on Financial Derivatives And Risk Management Set 5

Q1 | …………. risk is a loss may occur from the failure of another party to perform according tothe terms of a contract?
  • Credit
  • Currency
  • Market
  • Liquidity
Answer: Credit
Q2 | Financial derivatives includes?
  • Stock
  • Bonds
  • Future
  • None of these
Answer: Future
Q3 | By hedging a portfolio ; a bank manager
  • Reduces interest rate risk
  • Increases re investment risk
  • Increases exchange rate risk
  • None of these
Answer: Reduces interest rate risk
Q4 | A long contract requires that the investor
  • Sell securities in the future
  • Buy securities in the future
  • Hedge in the future
  • Close out his position in the future
Answer: Buy securities in the future
Q5 | The disadvantage of swaps is that they
  • Lack of liquidity
  • Suffer from default risk
  • Both A & B
  • B only
Answer: Both A & B
Q6 | Hedging by buying an option
  • Limits gain
  • Limits losses
  • Limits gain & losses
  • Has no limit on losses
Answer: Limits losses
Q7 | All other things held constant premium on options will increase when the
  • Exercise price increases
  • Volatility of the underlying assets fails
  • Term to maturity increases
  • Both B & C
Answer: Term to maturity increases
Q8 | An option allowing the owner to sell an asset at a future date is a ……………
  • Put option
  • Call option
  • Forward option
  • Future contract
Answer: Put option
Q9 | Composite value of traded stocks group of secondary market is classified as
  • Stock index
  • Primary index
  • Stock market index
  • Limited liability index
Answer: Stock market index
Q10 | ………….. is the minimum amount which must be remained in a margin account
  • Maintenance margin
  • Variation margin
  • Initial margin
  • None of these
Answer: Initial margin
Q11 | The number of future contract outstanding is called ………….?
  • Liquidity
  • Float
  • Volume
  • Turnover
Answer: Liquidity
Q12 | The amount paid for an option is the
  • Strike price
  • Discount
  • Premium
  • Yield
Answer: Premium
Q13 | Futures contracts are more successful than interest rate forward contracts because they :
  • are less liquid
  • have greater default risk
  • are more liquid
  • have an interest rate tied to the discount rate
Answer: are more liquid
Q14 | The payoffs for financial derivatives linked to
  • Securities that will be issued in the future
  • The volatality of interest rates
  • previously issued securities
  • none of the above.
Answer: previously issued securities
Q15 | Which of the following is not a problem with an interest rate forward contract?
  • Low interest rate
  • default risk
  • lack of liquidity
  • finding a counterparty
Answer: Low interest rate
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