CMFAS Module 6A Set A

1) Which of the following statements about a derivative is/are TRUE?

The derivative's price is a function of its own inherent value.

It is not a financial security.

It obtains its value from the price movement of another asset or instrument.

All of the above.

2) Futures originated in the ____.

base metals sector

precious metals sector

agricultural sector

foreign exchange market

3) Transactions involving future deliveries were earlier known as ____.

options

forwards

spreads

accruals

4) Economic importance of futures markets includes its role in ____.

price discovery

increasing asset prices

reducing transparency

None of the above.

5) Risk management role of futures markets is indicated by which of the following
factors?

Transparency and ready availability of prices reduces the risk.

Investors may use futures contracts for achieving their investment objectives.

Risk of increase in prices of key supplies is reduced.

All of the above.

6) Which of the following is NOT a difference between Futures and other financial
instruments?

Value.

Lifespan.

Trading objectives.

Low risk.

7) Differences between futures and forwards DO NOT relate to which of the following
factors?

Transferability.

Involvement of an exchange.

Presence of a secondary market.

None of the above.

8) Which of the following statements about forwards is FALSE?

They are privately negotiated.

Mark-to-market process is followed on a daily basis.

Usually there is no partial settlement.

Settlement terms may vary from contract to contract.

9) Characteristics of forward contracts include ____.

High flexibility.

High counterparty risk.

High customization.

All of the above.

10) In the US Treasury Futures, the invoice price is equal to ____.

Settlement Price / (Conversion Factor - Accrued Interest)

Settlement Price x Conversion Factor - Accrued Interest

Settlement Price x Conversion Factor + Accrued Interest

Settlement Price + Conversion Factor X Accrued Interest

11) The term-sheet of a futures contract ____.

is non-binding

sets the basic terms and conditions for the investment

serves as a template for more detailed legal documents

All of the above.

12) In the futures market, the binding contract DOES NOT contain which of the
following terms?

Method of calculating the settlement price.

Settlement basis.

Spot price.

Trading hours.
13) The price quote for 2-year T-note Futures is in terms of ____.

percent of par to 1/4 to 1/32nd of 1% of par

percent of par to 1/2 to 1/32nd of 1% of par

percent of par to 1/2 to 1/16th of 1% of par

percent of par to 1/4 to 1/16th of 1% of par

14) Which of the following statements about packs and bundles of futures contracts
is/are TRUE?
I. Packs involve consecutive series of four Eurodollar futures.
II. Bundles involve consecutive series of 6 or more Eurodollar futures.
III. Bundles can be constructed starting with any quarterly contract.
IV. The first contract in any bundle is typically the last quarterly contract in the
Eurodollar strip.

I, II, III & IV

III & IV

I & III

II only.

15) SGX AsiaClear is the division of SGX for ____.

derivatives trading

clearing and settlement

clearing services of OTC oil swaps and freight futures

settlement of KO products
16) Which of the following statements about a limit order for a futures contract is
FALSE?

The order is guaranteed to be totally filled.

The quantity is specified.

The price is specified.

None of the above.

17) Market-to-limit orders for futures contracts can be ____.

entered as FAK

entered as FOK

stored in the order book as GTC

All of the above.

18) In a market-to-limit order for a futures contract, if there is no price at the opposite
side of the order book, the order is stored as a limit order at ____ than the best price
on the same side of the book

2 price ticks better

1 price tick better

4 price ticks better

3 price ticks better

19) If a market order for a futures contract is entered during a state where orders are
not continuously matched, it takes the ____ as its price.

closing price of the previous day

equilibrium price

the average price of the previous 3 trading days

 settlement price of the previous day

20) The Stop Order trigger condition can be defined by which of the following
parameters?
I. Stop Series.
II. Stop Price.
III. Stop time.
IV. Stop price.

I, II & IV

I, II, III & IV

III & IV

I & II

21) In the case of Stop Price Reference Type condition for a stop loss order, the stop
price can be compared to which of the following prices?

Bid price

Ask price

Last price

All of the above.

22) Which of the following statements about a market -if-touched (MIT) order are TRUE?
I. It is submitted as a market order if the trigger price is touched.
II. An MIT sell order is placed below the existing market price.
III. MIT orders are not visible to market participants before the trigger price is touched.
IV. All MIT orders are guaranteed to be filled.

I, II, III & IV

II & IV

I & III

II, III & IV

23) Which of the following statements about Session State Orders is TRUE?

They may not be Good-Till-Cancelled orders.

They may not be Limit orders.

They may not be stop orders.

They may not be market orders.

24) Which of the following is NOT a category of derivatives traded on the SGX?

Foreign exchange.

Dividend Indices.

Commodities.

None of the above.

25) SGX-DC DOES NOT provide clearing for which of the following trades?

OTC commodity trades registered via the SGX OTC Trade Registration Platform.

Products listed on SGX-DT.

OTC financial derivatives trades registered via industry -used trade registration
system.

None of the above.

26) SGX-DC runs a settlement cycle for all derivatives products on a ____.

weekly basis

daily basis

quarterly basis

monthly basis
27) Which of the following SGX -DT products are eligible for mutual offset with CME?
I. Eurodollar Futures (ED).
II. S&P 500 Futures.
III. Euroyen (TIBOR) Futures (EY).
IV. Nikkei 225 Index Futures (NK).

I, II, III & IV

I, III & IV

II & III

I & IV

28) Which of the following statements about pricing of futures is/are TRUE?
I. They are priced on a net cost of financing basis.
II. Difference between cash price and futures price is known as cost of yield.
III. Futures price is an accurate indicator of the spot price of the underlying asset on
the maturity date.
IV. In the cash-and-carry arbitrage, the trader sells the futures contract.

II & III

I & IV

I, II & III

IV only.

29) A bond can be purchased in the cash market at $50, while the futures price is $52.
The coupon is $2.5 and the financing cost is 1.5. Ignoring time value of money, advise
whether it is better to buy a 1 year futures contract for a bond or buy the bond i n cash.

It is better to buy the bond in the cash market.

It is better to buy the bond futures contract.

Both the options are equally good.

Cannot be determined with the given data.

30) The price of a Stock Index Futures Contract is:-
I. Spot price + Interest - Dividend.
II. Spot price + Financing cost - Income from stock.
III. Spot price - Interest + Dividend.
IV. Spot price - Financing cost + income from the stock.

I & II

II & III

III & IV

I & IV

31) The reverse cash and carry arbitrage involves which of the following steps? The
trader:

Buys the commodity.

Sells the futures contract.

Lends money received from the short sale.

All of the above.

32) Which of the following statements about risks associated with futures contracts is
FALSE?

The greater the net cost of carry, the greater the basis.

The greater the mismatch between the maturity dates of the cash and futures
contracts, the greater the basis.

Position adjustments may be first reflected through the futures market, thereby
affecting the basis.

None of the above.

33) Regarding futures pricing models, which of the following statements is/are TRUE?

The cost of carry model explains futures prices in terms of spot price adjusted with
the cost of holding the asset till maturity of the futures contract.

Expectancy Model of Futures Pricing posits that futures prices are simply the
expected spot prices of an asset in the future.

Activities in the futures markets may lead the spot market in price movement if the
futures contracts are more liquid.

All of the above.

34) Which of the following statements about factors affecting basis is TRUE?

The net cost and the basis are positively correlated.

Higher the difference between the maturity dates of the cash and futures contract,
lower the basis.

If the yield curve gets steeper, the basis will become narrower in case it was
positive.

Administered rates are more volatile compared to market rates.

35) Regarding factors affecting basis, which of the following statements is FALSE?

If the market sentiment turns bullish from bearish, the basis will widen.

If the market sentiment turns bearish from bullish, the basis will widen.

Basis may overshoot its implied value in case of significant changes in market
sentiments.

None of the above.

36) In the case of a hedged position, basis is defined as:

Spot price of asset to be hedged + Futures price of contract used

Futures price of contract used - Spot price of asset to be hedged

Spot price of asset to be hedged - Futures price of contract used

None of the above.

37) A futures contract and its underlying asset may not be the same as the asset being
hedged because of which of the following reasons?

The underlying asset may not be exactly the same as the asset being hedged.

Uncertainty in timing of purchase or sale of the asset being hedged.

The hedge may involve selling the futures contract before the delivery month.

All of the above.

38) A Eurocurrency is ____.

A futures contract denominated in Euro.

The official exchange rate between the currency and Euro.

A futures contract which agrees to buy Euro with the domestic currency.

A currency that is lent or borrowed outside the country of its origin.

39) If the annualized interest rate for a 180 day Treasury bill is 4.25%, the price of the
futures contract is ____.

$95.92

$95.75

$97.55

$102.13
40) Which of the following statements about stock indices is/are FALSE?
I. Nikkei 225 index is equally weighted.
II. STI Index is price weighted.
III. SGX All Share Index is capitalization weighted.
IV. Value Line Composite Average is price -weighted.

I & IV

II, III & IV

I, II, III & IV

II only.

41) Which of the following statements about equally weighted indices is FALSE?

A stock with a market price of $20 will have the same weightage as a stock with a
market price of $25.

Movements in the index can be based on the arithmetic average of the percent
price changes for the stocks in the index.

Movements in the index can be based on the geometric average of the percent
price changes for the stocks in the index.

None of the above.

42) If 1 USD = SGD 1.25, annual interest in the two countries is 4% and 6% respectively,
what is the exchange rate after one year based on interest rate parity theory?

1 USD = SGD 1.378.

1 USD = SGD 1.2264.

I USD = SGD 1.274.

1 USD = SGD 1.275.

43) Fed Funds belong to which class of futures contracts?

Foreign exchange futures.

Interest rate futures.

Base metals futures.

Energy futures.

44) Which of the following CANNOT be the underlying asset in short-term interest rate
futures contracts?

A time deposit in a Eurocurrency.

A government treasury bill.

A basket of preferred shares issued by blue chip companies.

All of the above.

45) Which of the following correctly depicts the relationship between various factors in
the interest rate parity theory relationship between the spot rate and the futures rate?

Spot rate is inversely proportional to the annualised interest rate of ba se currency.

Futures rate is unrelated to the annualised interest rate of the counter -currency.

Annualised interest rate of the base currency appears in the numerator of the
formula for calculating futures rate.

None of the above.

46) Which of the following statements about Equity Index Futures and Stocks is/are
FALSE?
I. There is no uptick rule for short -selling Equity Index Futures.
II. Borrowing of shares is allowed in the case of short -selling Equity Index Futures.
III. Cash index is the underlying for Equity Index Futures.
IV. Stocks are marked to market on a daily basis.

I & IV

II & IV

I, II, III & IV

III only.

47) The American Dow Jones Industrial Average is a ____ index.

price-weighted average

Capitalization-weighted average

equally-weighted average

None of the above.

48) The Australian ASX 200 Index is a ____ index.

equally-weighted average

market-value-weighted average

price-weighted average

None of the above.

49) Compared to a market weighted index, an Equally -Weighted Index comprising of the
same stocks will always have a ____ exposure to smaller market cap stocks and ____
exposure to large-cap stocks.
lesser, greater

greater, lesser
 greater, greater

lesser, lesser

50) The fair value of an equity index futures contract is usually expected to be positive
because of which of the following reason?

Long-term interest rates are lower than dividend yields.

Short-term interest rates are lower than dividend yields.

Equity index futures holders are not entitled to dividends.

None of the above.

51) If the futures price of an Equity Index Futures is $100, the spot price is $95, and the
interest is $7, what is the dividend?

$2

$3

$7

Zero

52) If there are no dividends, the future price of an Equity Index Futures will
theoretically be ____.

the same as the spot price if the interest rate is greater than zero

more than the spot price if the interest rate is more than zero

less than the spot price if the interest rate is equal to zero

None of the above.

53) Historically, the correlation between real estate and bond investments has been
____.

highly volatile

high
 low

Absent

54) The National Council of Real Estate Investment Fiduciaries index focuses on ____.

commercial real estate

industrial properties

single-family dwellings

large homes

55) The S&P/Case-Shiller Home Price Index is a series of indices representing ____
different metropolitan statistical areas.

10

12

56) The main types of participants in the futures market are: -

I. Insurance providers.
II. Speculators.
III. Arbitrageurs.
IV. Portfolio managers.

II & III

II, III & IV

I, II, III & IV

II only.

57) Which of the following statements about arbitrageurs is FALSE?

They take directional bets on the markets.

They profit from the difference in prices in the cash and the futures markets.
 They normally work for institutions rather than themselves.

They help improve the liquidity of the market.

58) Proprietary trading firms are also known as ____.

prop shops

market makers

long only traders

short only traders

59) The main investment and trading strategies used in the futures markets are:
I. Basis trades.
II. Hedging.
III. Outright trades.
IV. Spread trades

I & II

II & III

III & IV

I, II, III & IV

60) Spread trades in the futures markets involve ____.

Buying and selling the same contract after a time interval.

Buying and selling contracts simultaneously.

Buying and selling contracts with different contract size at different times.

None of the above.

61) Which of the following statements about types of spreads is/are FALSE?
I. Inter-commodity spreads involve the same commodity, but on different exchanges.
II. Inter-delivery spread trades involve spread between contracts of different
commodities with different delivery months.
III. Calendar spread is done on the same exchange, in the different commodities, but
for different contract sizes.
IV. Inter-market spread trades involve different exchanges.
 I, II & III

I, II, III & IV

III & IV

II only.

62) If a speculator believes that the long -term interest rates will rise faster than the
short-term rates, what should he do?

Sell the near term contract.

Buy the long-term contract.

Buy the near term contract and sell the long -term contract.

None of the above.

63) Which of the following statements about butterfly spreads is TRUE?

It is bought when the nearby spread is expected to become more negative

compared to the distant spread.

It is bought when the nearby spread is expected to become less positive compared
to the distant spread.

It is bought if the nearby wing is expected to strengthen compared to the distant

wing.

None of the above.

64) In case of a butterfly spread if the nearby spread increases by 10 ticks and the
distant spread increases by 5 ticks, the profit / loss of the trader is ____.

A loss equal to 5 times the value of one basis points for the contract.

A profit equal to 5 times the value of one basis points for the contract.

A loss equal to 50 times the value of one basis points for the contract.
 A profit equal to 2 times the value of one basis points for the contract.

65) Which of the following statements about condor spreads is FALSE?

It has a bull spread.

It has a bear spread.

It has a common middle contract.

None of the above.

66) Buying a calendar spread of futures contracts refers to ____.

buying both the nearer delivery month and the further delivery month contracts

buying the nearer delivery month and selling the further delivery month contracts

selling the nearer delivery month and buying the further delivery month contracts

selling both the nearer delivery month and the further delivery month contracts

67) In a calendar spread of futures contracts, what can be the ratio of purchase?

1:1

+1 : -1.

-1 : +1

All of the above.

68) What is the market view of a trader buying a calendar spread of futures contracts?

Trader expects the yield curve to steepen.

Trader expects the yield curve to remain flat.

 Trader expects the yield curve to invert.

Trader is unsure about the future shape of the yield curve.

69) A trader buys a calendar spread of futures contracts and the long -term interest
rates rise more than the short -term interest rates. Which of the following correctly
reflects his profit/loss position?

He will make a profit on the nearer leg and suff er a loss on the further leg.

He will suffer a loss on the nearer leg and make a profit on the further leg.

He will make a profit on both the nearer leg and the further leg.

He will suffer a loss on both the nearer leg and the further leg.

70) If a trader buys a calendar spread of USD/GBP futures contracts and the price of leg
1 falls by 1 tick and that of the further leg falls by 2 ticks, what is the profit or loss?
Assume that each tick is USD 50 and the contract size is 100.

$10,000 profit.

$20,000 loss.

$5,000 profit.

$10,000 loss.

71) What is the ratio for purchase of a butterfly spread of futures contracts?

+1 : +2 : +1.

-1 : -2 : +1.

+1 : +2 : -1.

+1 : -2 : +1.

72) If the spread in the opening position of a butterfly spread of futures contracts is 14
ticks and the spread in the closing position is 20 ticks, what is the net position?

34 ticks gain
 6 ticks gain

6 ticks loss

34 ticks loss

73) How many contracts are involved in a condor spread?

74) The TED spread is:

The difference between the price of the 3 -month US Treasuries futures contracts
and 3-month Eurodollars futures contracts having the same expiry.

The difference between the price of the 3 -month US Treasuries futures contracts
and 6-month Eurodollars futures.

The difference between the price of the 6 -month US Treasuries futures contracts
and 6-month Eurodollars futures contracts having the same expiry.

The difference between the price of the 3 -month US Treasuries futures contracts
and 3-month Eurodollars futures contracts with different expiry.

75) A TED spread indicates which of the following risks?

Liquidity risk.

Interest rate risk.

Credit risk.

Legal risk.
76) Which of the following statements about hedging is/are TRUE?
I. It allows for more efficient product pricing.
II. It helps in converting basis risks to price risks.
III. It makes the cash flow smoother.
IV. It reduces the working capital requirement.

I, II, III & IV

I, II & IV

I, III & IV

II only.

77) The factors to be considered before initiating a hedge include: -

I. Probability of change in prices.
II. Magnitude of the expected change.
III. Assumed basis risk for the hedge.
IV. Cost of hedging compared to the risk value.

I, II, III & IV

I, II & IV

II & III

I & IV

78) The limitations to the use of futures and exchange traded options for hedging
include ____.

Standardized expiry dates.

Margin maintenance.

Round number of contracts.

 All of the above.

79) Target rate for hedge is calculated as ____.

Initial futures rate + Ending basis.

Ending security price + Futures gain.

Futures rate + Target rate basis.

None of the above.

80) Regarding types of hedges, which of the following statements is/are FALSE?
I. Strong form hedge is for covering risks on assets to be held for an indefinite period of
time.
II. Immunization is done for a currently held cash position.
III. Inventory hedge is for covering risks related to assets t o be held for an indefinite
period of time.
IV. The objective of immunization is to minimize the variance in expected total returns
of a portfolio.

I only.

II only.

I, II & III

II & IV

81) Which of the following statements about strong form of anticipatory hedge is TRUE?

The appropriate hedge ratio is the exact dollar match.

This hedge requires acquiring future delivery to the anticipated dollars of bonds as
the anticipated cash inflow.

This hedge applies whenever the timing and quantity of cash flow are not known
with certainty.
 None of the above.

82) Which of the following statements about hedge ratio is/are TRUE?
I. In equal dollar match hedge ratio alternative, the ratio is negative.
II. It defines the expected movement in the value of the cash instrument to be hedged
considering a specified movement in the value of the relevant futures contract used for
hedging.
III. It is that ratio of futures to t he spot position which minimizes the risk.
IV. It is that ratio of spot position to futures which minimizes the risk.

I, II & III

II & IV

III only.

I, II, III & IV

83) If S is the security price and F is the futures price, the relation between hedge ratio
(h) and value of the hedged position (V) is depicted as ____.

h = (V-S) ?? F

h = (V-S) X F

h = (F-S) ?? V

h = (V-F) ?? S

84) In a delta-neutral hedge, the value of the hedged position is ____.

Change in security price ?? Change in futures price

(Change in security price ?? Change in futures price) X -1

None of the above.

85) In case of hedging, a nearby contract is preferred to a more distant contract
because of which of the following factors?
I. Higher chance of appreciation of the asset.
II. Higher correlation with the price of the underlying asset.
III. Higher liquidity.
IV. Negative hedge rati o.

II & III

I, II, III & IV

III only.

I & IV

86) Which of the following statements about types of hedges is/are FALSE?

An extrapolative hedge is used when the maturity date of the underlying asset
straddles two expiry dates of the hedge instrument.

An interpolative hedge is used when the maturity date of the underlying asset lies
beyond the tenor of the last traded contract.

Expiry date mismatch reduces the basis risk.

All of the above.

87) Which of the following statements regarding STRIPS and STACKS is/are TRUE?

STRIPS employ deferred contract month.

STACKS involve use of successive futures contract months.

STRIPS aim to match delivery dates on futures contracts with the rollover dates.

All of the above.

88) Regarding hedging long-term interest rate risk with bond futures, which of the
following statements is/are TRUE?

Extra contracts may need to be purchased to cover the entire risk.

The extra contract will need to be closed after the delivery date.

Future pricing is likely to be more than that implied by cash and carry arbitrage.

All of the above.

89) Regarding an equity portfolio, stock index futures can be used to hedge against
____.

Specific risks.

Systematic risks.

Leverage risks.

None of the above.

90) Which of the following statements about hedging equity portfolio risks is FALSE?

Beta of the portfolio is one factor to determine the number of contracts required
to hedge a position.

A short hedge is used when one is short in the stock market.

In calculating modified portfolio value, weighted beta of the portfolio is used.

None of the above.

91) The total value of a two -stock portfolio is $1 million and the weight of the first
stock (beta = 1.2) is 60%. The beta value for the second stock is 1.8. What is the
modified portfolio value?
 $1,000,000

$1,440,000

$1,560,000

$694,444

92) The existing value of a portfolio is $500,000, the futures value is $3,100, and the
value per tick is 10. If the beta of the portfolio is 1.5, what is the minimum number of
contracts required to hedge the position?

11

10

24

25

93) If a consumer has taken housing loan from a bank at floating rate and he expects
the rates to go up, what alternatives does he have to cover the risk?
I. He can sell interest rate futures.
II. He can buy the interest rate call option.
III. He can sell the stock of the bank.
IV. He can buy the interest rate put option.

I, II & IV

I, II, III & IV

IV only.

I & IV

94) Hedging a security with another instrument where the two are positively correlated
and have similar price movements is referred to as ____.

alpha hedge

beta hedge
 gamma hedge

cross-hedge

95) Which of the following statements about US Treasury bonds and corporate bonds is
TRUE?

In financial distress, the credit spread on corporate bonds will increase.

In financial distress, the credit spread on corporate bonds will decrease.

In financial distress, the credit spread on corporate bonds will remain the same.

In financial distress, basis risks in selling Treasury bond futures to hedge corporate
bond exposures will be lower.

96) If the target rate for a hedge is 2% and the futures rate is 0.5%, what is the target
rate basis?

2.5%

1.0%

1.5%

0.5%

97) If the change in security price is double the change in futures price, bank loan value
is 10 times the contract size, what is the number of contracts required for a complete
hedge?

10

15

20

98) Calculate the loan value in a delta -neutral hedge if the hedge ratio is 4, number of
contracts required for hedging is 100, and the contract size is $2 million.
 $100 million

$50 million

$400 million

$200 million

99) Which of the following formula correctly depicts the hedge ratio for hedging a bond
portfolio with bond futures?

(PVBP of hedge security/PVBP of most deliverable bond) X Conversion factor for

most deliverable bond

(PVBP of hedge security X PVBP of most deliverable bond)/Conversion factor for

most deliverable bond

PVBP of hedge security X PVBP of most deliverable bond X Conversion factor for
most deliverable bond

Conversion factor for most deliverable bond/(PVBP of hedge security X PVBP of

most deliverable bond)

100) The PVBP of a bond being hedged is half that of the most deliverable bond, and
the hedge ratio is 2. What is the conversion factor of the most deliverable bond?

0.5

101) Modified portfolio value (MPV) refers to:

The value of the actual portfolio divided by the weighted beta of the stock
portfolio.

The value of the actual portfolio multiplied by the total beta of the stock portfolio.

The value of the actual portfolio divided by the total beta of the stock portfolio.
 The value of the actual portfolio multiplied by the weighted beta of the stock
portfolio.

102) In the 130/30 long-short strategy used by hedge fund managers:

The outperformers in the portfolio are 30% of the assets under management.

The outperformers in the portfolio are 130% of the assets under management.

The outperformers in the portfolio are 70% of the assets under management.

The outperformers in the portfolio are 160% of the assets under management.

103) Use of futures contracts for portfolio management is a good option because of
which of the following reasons?

Faster transaction time.

Lower brokerage.

Higher liquidity.

All of the above.

104) Which of the following statements about arbitraging is/are FALSE?

It involves predicting the prices of an asset accurately.

It may involve taking advantage of prevailing prices of a security.

It involves extensive use of computers.

All of the above.

105) For evaluating the suitability of an arbitrage opportunity, which of the following
factors need to be considered?
I. Brokerage.
II. Future prospects of the stock.
III. Initial margin.
IV. Basis risks.
 I, II, III & IV

I, II & IV

I, III & IV

I & III

106) A forward rate arrangement (FRA) is ____.

The currency futures equivalent of bonds.

The over-the-counter equivalent of forwards.

The over-the-counter equivalent of futures.

None of the above.

107) Which of the following statements about arbitraging is/are FALSE?

If the futures and forward rate arrangements (FRA) have different value dates,
there are no fixing risks.

Institutional constraints to operate in a market may give rise to arbitrage

opportunities for those institutions.

FRA cannot be customised in terms of contract amount.

All of the above.

108) Which of the following statements about interest rate swaps is FALSE?

Arbitrage opportunity arises when the market price is different from the STRIPS.

The two parties agree to exchange periodic payments based on fixed interest rates.

The principal on which the interest rate is calculated is notional.

None of the above.

109) Arbitrage opportunities arise in the case of options when ____.

The premiums trade out of sync with the price of the underlying instrument.
 The premiums trade in sync with the price of other options.

The premiums trade in sync with the price of the underlying asset.

None of the above.

110) The cash extraction call buying strategy DOES NOT involve ____.

Buying the call option.

Selling the underlying asset.

Investing the money in a short -term bond.

None of the above.

111) If a trader short sells a stock at $100 and buys a call option for the stock with
exercise price of $102 at a premium of $1, what is the maximum loss he can suffer if
the price of the underlying is $110 at expiry?

$7

$13

$11

$3

112) If a trader short sells a stock at $50 and buys a call option at $0.50 premium for
strike price of $51, what is the profit / loss if the price of the stock at expiry is $45?

$3.5 loss.

$0.5 profit.

$4.5 loss.

$4.5 profit.

113) In case a trader covers his short position in an asset by purchasing a call option,
what is his break even point?
 Selling price of the underlying minus the premium paid for the call option.

Purchase price of the underlying minus the premium paid for the call option.

Strike price of the underlying minus the premium paid for the call option.

Exercise price of the underlying minus the premium paid for the call option.

114) A trader sells a call option for a stock with a strike price of $20 and receives a
premium of $0.8. To cover his position he buys the underlying asset at $19. Which of
the following statements about this position is/are TRUE?
I. This position has a limited upside.
II. If the market price of the asset is $18, he makes a profit of 20 cents.
III. The maximum profit he can make is $18.20.
IV. The breakeven point for the trader is $18.20.

I, II, III & IV

I & IV

II & III

IV only.

115) Which of the following statements about protective put strategy is FALSE?

It combines a long put and a long position in the underlying.

It is also known as portfolio insurance.

The upside in this strategy is unlimited.

None of the above.

116) If a trader buys a stock at $100 and simultaneously buys a put for strike price $99
at $0.50 premium, which of the following statements is FALSE?

If the market price of the stock is $104, the profit is $3.50.

If the market price of the stock is $93, the loss is $1.50.

The breakeven point for the trader is $100.50

 None of the above.

117) Regarding market outlook based strategies, which of the following statements
is/are FALSE?

Uncovered call writing can be done if one has a bearish outlook.

Covered call writing can be done if one has a neutral outlook.

Straddles can be purchased in case of a bearish outlook.

All of the above.

118) Which of the following statements about a straddle is/are TRUE?

I. It consists of buying a call and a put at the same strike price.
II. It is a good strategy in highly stable markets.
III. The theta of a straddle is negative.
IV. The profit is capped.

I & III

I, II, III & IV

IV only.

II & III

119) Characteristics of a strangle strategy in options include: -

I. It involves buying a call and selling a put.
II. The strike price of the call and put are different.
III. It is less costly compared to a straddle.
IV. Usually, the strike price of the put is lower than that of the call.

II & IV

II, III & IV

 I, II & IV

I & III

120) If S is the strike price of a straddle, the total premium paid for the call and the put
is P, and the market price of the underlying asset is M, the straddle will be in profit
when:-
I. M-P>S.
II. M+P>S.
III. M-P<S.
IV. M+P<S.

III & IV

II & III

I & II

I & IV
1 C 2.1 21 D 2.4 41 D 2.7 61 A 3.3 81 B 3.4 101 D 3.4
2 C 2.1 22 C 2.4 42 C 2.7 62 C 3.3 82 D 3.4 102 B 3.4
3 B 2.1 23 A 2.4 43 B 2.7 63 C 3.3 83 A 3.4 103 D 3.5
4 A 2.1 24 D 2.4 44 C 2.7 64 B 3.3 84 B 3.4 104 A 3.6
5 D 2.1 25 D 2.4 45 D 2.7 65 C 3.3 85 A 3.4 105 C 3.6
6 D 2.2 26 B 2.4 46 B 2.7 66 B 3.3 86 D 3.4 106 C 3.6
7 D 2.2 27 B 2.4 47 A 2.7 67 B 3.3 87 C 3.4 107 D 3.6
8 B 2.2 28 B 2.5 48 B 2.7 68 A 3.3 88 A 3.4 108 B 3.6
9 D 2.3 29 A 2.5 49 B 2.7 69 B 3.3 89 B 3.4 109 A 3.6
10 C 2.3 30 A 2.5 50 D 2.7 70 C 3.3 90 B 3.4 110 C 4.11
11 D 2.3 31 C 2.5 51 A 2.7 71 D 3.3 91 B 3.4 111 D 4.11
12 C 2.3 32 D 2.6 52 B 2.7 72 B 3.3 92 D 3.4 112 D 4.11
13 A 2.3 33 D 2.6 53 C 2.7 73 C 3.3 93 D 3.4 113 A 4.11
14 C 2.4 34 A 2.6 54 A 2.7 74 A 3.3 94 D 3.4 114 B 4.11
15 C 2.4 35 D 2.6 55 C 2.7 75 C 3.3 95 A 3.4 115 D 4.11
16 A 2.4 36 C 2.6 56 B 3.1 76 C 3.4 96 C 3.4 116 A 4.11
17 D 2.4 37 D 2.6 57 A 3.1 77 A 3.4 97 D 3.4 117 C 4.12
18 B 2.4 38 D 2.7 58 A 3.1 78 D 3.4 98 B 3.4 118 A 4.12
19 B 2.4 39 B 2.7 59 D 3.2 79 C 3.4 99 A 3.4 119 B 4.12
20 A 2.4 40 A 2.7 60 B 3.3 80 A 3.4 100 A 3.4 120 D 4.12