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Derivatives - Derivatives Section 1 Online Exam Quiz

Important questions about Derivatives - Derivatives Section 1. Derivatives - Derivatives Section 1 MCQ questions with answers. Derivatives - Derivatives Section 1 exam questions and answers for students and interviews.

1. Which of the following is not a derivative?

Options

A : A contract to purchase shares of Infosys, a technology company, at a fixed price.

B : An asset-backed security.

C : A global equity mutual fund.

D :

2. Which of the following statements is most likely to be correct about derivatives?

Options

A : A derivative is a financial instrument that derives its value based on the performance of the underlying.

B : Derivatives are standardized financial instruments and cannot be customized.

C : The performance of a derivative is derived by replicating the performance of the underlying.

D :

3. Which of the following statements about derivatives is least accurate?

Options

A : They derive their value from an underlying.

B : They have low degrees of leverage.

C : They involve two parties – a buyer and a seller.

D :

4. Which of the following statements about derivatives is not true?

Options

A : They are used for risk management.

B : They are created in the form of legal contracts.

C : They are created in the spot market.

D :

5. Which of the following statements about exchange-traded derivatives is least accurate?

Options

A : They are more transparent than over-the-counter derivatives.

B : All terms of the contract except the price are standardized.

C : They have more credit risk than over-the-counter derivatives.

D :

46. Which of the following statements about arbitrage is most accurate?

Options

A : Arbitrage imposes penalties on rapid trading.

B : Arbitrage redistributes risk among market participants.

C : Arbitrage helps prices to converge to their relative fair values.

D :

47. David is studying the law of one price. Which of the following statements is most likely to be correct?

Options

A : The law of one price explains that two assets producing equal future cash flows would sell for equal prices.

B : The law of one price describes how a risk-free profit can be earned without capital commitments.

C : The true fundamental value of the asset can be described by the law of one price.

D :

48. Which of the following most likely represents an arbitrage opportunity?

Options

A : A risk free rate is earned by the combination of the underlying asset and a derivative.

B : Sale of the shares of a takeover target and purchase of shares of the potential acquirer.

C : Two identical assets or derivatives are sold for different prices in different markets.

D :

49. Which of the following is most likely to be a criticism of the derivatives market?

Options

A : Derivatives provide price information but only at a cost of increasing transaction costs.

B : Derivatives are highly speculative instruments and effectively permit legalized gambling.

C : Default risk exists within all instruments of the derivative market.

D :

50. Which of the following statements about the feature of an option is correct?

Options

A : Only the long party can default.

B : Only a short party can default.

C : Both long and short party can default.

D :

51. Which of the following characteristics is least likely needed for the existence of riskless arbitrage? The underlying security:

Options

A : can be short sold.

B : is relatively liquid.

C : is a financial asset

D :

52. An attribute common to both forward and futures contracts is:

Options

A : their mark to market feature.

B : their standardized nature.

C : their use in hedging and speculation.

D :

53. When the implied volatility on equity market index options goes up, it is safe to assume that:

Options

A : market interest rates have increased.

B : the market uncertainty has increased.

C : the market index value has increased.

D :

54. The spot price of an asset that has no interim costs or benefits will be least likely affected by:

Options

A : the risk aversion of investors.

B : the time value of money.

C : the price recently paid by other investors.

D :

55. Which of the following is least likely a benefit of holding an asset?

Options

A : Convenience yield.

B : Dividends or interest payments.

C : A positive forecast for the asset.

D :

56. Which of the following statements is most accurate?

Options

A : An arbitrage opportunity is an opportunity to buy an asset at less than its fundamental value.

B : An arbitrage opportunity is an opportunity to make a profit at no risk with no capital invested.

C : An arbitrage opportunity is to earn the risk-free rate.

D :

57. If an arbitrage opportunity exists the:

Options

A : prices will adjust to eliminate the opportunity.

B : risk premiums will increase.

C : markets will cease operations.

D :

58. An arbitrage opportunity is most likely to be exploited when:

Options

A : the price differential between assets is large.

B : the price differential between assets is minor.

C : the investor can only execute a transaction in small volumes.

D :

59. An arbitrageur will least likely execute a trade when:

Options

A : transaction costs are low.

B : prices reflect the law of one price.

C : offsetting positions are very liquid.

D :

60. An arbitrage transaction is most likely to generate a profit when:

Options

A : two portfolios produce identical results and sell for the same price.

B : two portfolios produce identical results but sell for different prices.

C : two portfolios produce different results and sell for different prices.

D :

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