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Get Financial Derivatives and Risk Management Certificate from The Digital Adda which you can share in the Certifications section of your LinkedIn profile, on printed resumes, CVs, or other documents.
Exam Details:
- Format: Multiple Choice Question
- Questions: 10
- Passing Score: 8/10 or 80%
- Language: English
Which of the following is a characteristic of a futures contract?
a) It is an obligation to buy or sell an asset at a predetermined price on a specified future date.
b) It gives the holder the right, but not the obligation, to buy or sell an asset.
c) It is a non-standardized contract traded over-the-counter.
d) It involves the exchange of principal amounts in different currencies.
What is the primary purpose of using derivatives in risk management?
a) To maximize profits through speculation.
b) To hedge or mitigate financial risks.
c) To increase leverage in an investment portfolio.
d) To avoid regulatory compliance.
Which of the following best describes a call option?
a) A contract that gives the holder the right to sell an asset at a specified price before a certain date.
b) A contract that obligates the holder to buy an asset at a specified price before a certain date.
c) A contract that gives the holder the right to buy an asset at a specified price before a certain date.
d) A contract that obligates the holder to sell an asset at a specified price before a certain date.
In an interest rate swap, what do the counterparties typically exchange?
a) Principal amounts in different currencies.
b) Fixed interest rate payments for floating interest rate payments.
c) Shares of stock.
d) Commodities like oil or gold.
Which of the following is a type of derivative that is traded over-the-counter (OTC)?
a) Futures
b) Options
c) Swaps
d) Exchange-traded funds (ETFs)
What is the main advantage of using options for hedging purposes?
a) They are cheaper than other derivatives.
b) They provide unlimited profit potential.
c) They offer the flexibility to choose whether to exercise the option.
d) They have no expiration date.
A forward contract is best described as:
a) A standardized contract traded on an exchange.
b) A contract that can be exercised at any time before expiration.
c) A customized contract between two parties to buy or sell an asset at a future date at a price agreed upon today.
d) A contract that provides the right, but not the obligation, to buy or sell an asset.
Which of the following risks is most commonly associated with derivatives?
a) Operational risk
b) Market risk
c) Liquidity risk
d) Reputational risk
In the context of options, what does the term “in the money” mean?
a) The option has no intrinsic value.
b) The option is profitable if exercised.
c) The option will expire worthless.
d) The option can only be exercised at expiration.
What is the primary function of a clearinghouse in the derivatives market?
a) To act as a counterparty to both sides of a transaction to reduce risk.
b) To determine the market price of derivatives.
c) To issue new derivatives contracts.
d) To provide regulatory oversight.
