Brainscape's Knowledge GenomeTM


Top Flashcards (Certified)
All Flashcards

Derivatives > Mock 5 > Flashcards

Mock 5 Flashcards

1
Q

If an investor holds a cash settled contract, how would this differ from holding a deliverable contract?

A

Deliverable contracts settle through the physical exchange of the asset whereas cash settled do not

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
2
Q

Who has the right to buy back undated government bonds?

A

HM Government

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
3
Q

The first notice days and last notice day

A

can be the same day

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
4
Q

Which of the following BEST represents how trading is conducted on the London Metals Exchange (LME)?

A

Open outcry and electronic trading are both available

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
5
Q

When the underlying falls in value

A

call premiums fall and put premiums rise

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
6
Q

In a swap, what is the significance of the effective date?

A

It is the start date for accrual purposes

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
7
Q

In relation to SPAN:

A

Positions are allowed to be offset within a portfolio

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
8
Q

Which benchmark interest rate is quoted in more than one currency?

A

LIBOR

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
9
Q

Which of the following would an investor choose if they expect a sharp rise in the market?

A

Out-of-the-money call

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
10
Q

How would a hedger attempt to eliminate basis risk?

A

Hold the derivative investment to expiry

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
11
Q

If an investor wishes to hedge against small price movements they should ensure their position has:

A

Delta = 0

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
12
Q

In respect of Asian options which is the best description of an average strike option?

A

The strike price is set at the expiration date to be the average rate of the underlying over the life of the option

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
13
Q

Which of the following describes arbitrage relating to the principal of put-call parity?

A
  • A combination of an underlying asset and positions in options
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
14
Q

Which ONE of the following applies to a writer of an option on a future?

A

Receives full premium on expiry

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
15
Q

Who benefits most from the passing of time?

A

Option writers

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
16
Q

What actions is a non-clearing dealer member of an exchange permitted to do?

A

Trade for themselves only

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
17
Q

Based on the Black and Scholes model for pricing options, we can assume that an increase in volatility will result in:

A

An increase in the premium value

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
18
Q

A retail investor buys one future on ICE Futures Europe and clears through ICE Clear Europe. Which of the following is true of her margin payments?

A

They will be at least equal to those called on her broker

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
19
Q

basis swap

A

It is where both legs are floating

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
20
Q

Which ONE of the following is TRUE of FCA authorised funds?

A

They are freely marketable to the UK retail market

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
21
Q

For what reason would you exercise a receiver option?

A

Because interest rates have dropped so the option is in-the-money

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
22
Q

If a member of a clearing house has elected for automatic exercise, how would they prevent the exercise of a particular option?

A

Suppression order

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
23
Q

Options with the longest remaining life (in this question, the Octobers) have the greatest time value.

A

the option which is closest to being at the money will have greatest time value.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
24
Q

An investor buys a bond with a BBB- credit rating. Why would they take out a credit default swap on the bond?

A

To protect the investor from a credit event

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
25
How are principles-based regulation best defined?
Use of high-level objectives that are binding on the firm
26
Which of the following measures the sensitivity of delta to a change in the value of the underlying?
Gamma
27
Broker X and Broker Y trade a futures contract between themselves. They are both non-clearing members of the exchange. The contract is registered with ICE Clear. A few days later broker X defaults on his margin payments. Who is responsible for any losses?
The clearing member that cleared the trade
28
Other than following the initial trade, when else can novation occur?
When a clearing member takes on the open position of another member
29
A general clearing member suffers default by an executing broker who gave up the trade. What protection will be offered to the member to cover the defaulting position?
Margin provided by the broker
30
liquidity
The facility with which a product can be traded
31
If metal prices fall,
supply will in turn fall, bringing prices to a new equilibrium though, causing them to rise.
32
equity traded options
A call option's exercise price can be above the share price
33
Time value is greatest for which of the following options if the underlying asset is prices at 115 in April 2005?
November 2005 160 call
34
Which of the following best describes what happens on settlement day?
The seller, after giving appropriate notice, makes delivery of the underlying
35
Spot month margin is:
Additional margin to minimise any volatility near expiry date
36
Phil's current portfolio is short 20 calls with a delta of 0.3. The portfolio can be made delta neutral by:
Buying 6 futures
37
credit derivative
It protects an investor against a bond receiving a credit downgrade
38
How is the payment calculated on a non-deliverable forward?
The forward rate agreed for the contract is compared to the spot rate at the end of the contract
39
If an investor expected the spread in a backwardation market between futures traded on the same underlying asset to narrow, what action would they likely take?
Sell the spread
40
synthetic short position.
Short call, long put = synthetic short position.
41
An option writer has no ability to exercise an option
so could not instigate the issuance of an assignment notice.
42
In which of the following instances would a trading member of an exchange give-up a trade to its clearing member?
If the member was a non-clearing member of the clearing house
43
The Commodity Futures Modernisation Act lifted the ban on which of the following?
Single stock futures
44
What are the daily movements paid on a futures position on an exchange called?
Variation margin
45
Which of the following will cause an increase in price of emission rights?
Pollution targets are reduced based on regulations
46
An investor buys a put and simultaneously sells a put with a higher strike price. What strategy has he entered into?
Bull put spread
47
Which of the following are taken into account before deciding to carry out a cash and carry arbitrage trade?
Time to expiry The price of the future Interest rates The spot price
48
The announcement of which of the following would NOT affect the spot price of crude oil?
A tax change
49
synthetic short call position?
Short future, short put
50
If a client has used up their credit-line with a broker, they can trade in which of the following circumstances?
If they supply more collateral to the broker23
51
An equity index future with a distant delivery date will have a higher fair value than that of a near-dated one if:
The dividend yield is lower than present interest rates
52
Margin is demanded by the clearing houses in the US and UK based on:
Net positions in the UK and gross positions in the US
53
A producer who is long a commodity and is concerned that it will fall in value should undertake which of the following?
Buy a commodity floor
54
Which of the following need not be disclosed to a retail client before executing a trade in a contingent liability transaction in relation to margin payments?
A statement that initial margin is a requirement from the relevant clearing house
55
premium
is determined by the market.
56
The role of counterparty to the buyer of an exchange futures contract is taken over from the seller by:
ICE Clear Europe
57
Which TWO of the following dates defines the period of an interest rate swap?
The effective date | The termination date
58
Fair value
= Cash price of the contract + Interest + Storage costs Interest
59
Which of the following increase cost-of-carry?
Interest rates increase and the underlying increases in price
60
An investor who sells the expensive contract and takes an offsetting position in the cash market is undertaking which of the following trades?
Cash/Futures arbitrage
61
benefits of exchange traded derivatives.
Liquidity Reduced default risk Speed up trading
62
Which ONE of the following represents a reason for the introduction of the over-the-counter derivatives market?
Confidentiality
63
The relationship of the clearing house to a clearing member would be described as:
Always principal to principal
64
If interest rates rise, what is the likely effect on equity option premiums?
Call prices rise and put prices fall
65
Which of the following documents would need to be provided to a US investor in the event that a UK firm carries out a derivative transaction on their behalf?
Risk warning to be acknowledged by the investor
66
basis swap
particular type of interest rate swap where a floating rate is swapped for a different floating rate.
67
Which of the following is the BEST definition of a futures contract? To enter into an agreement to deliver or take delivery of:
A specified quality and quantity of a specified asset on a fixed future date at a price agreed today
68
A GBP inflation swap would be based upon which inflation index
RPI
69
A derivative portfolio has a low gamma, this indicates:
The asset manager will less likely be required to actively manage their dynamic hedges to remain delta neutral
70
An investor buys a 100 strike put with a January expiry and sells a 120 strike put with an April expiry. This is an example of which type of trade?
A diagonal spread
71
crude basis
It is non-linear
72
Why would an investor buy a receiver swaption?
To hedge against a fall in interest rates To make a quick profit if interest rates fall
73
Which of the following is true regarding margining positions for equity options?
A vertical bear put spread is unlikely to be margined
74
Which of the following is a positive feature of over-the-counter products over exchange-traded products?
Flexibility allows for more accurate hedging
75
American style payer swaption
The buyer has the right to enter into a swap from the commencement date to the expiry date and pay a fixed rate of interest
76
A country introduces a 5% export tariff on cocoa in order to ensure domestic supply. The likely impact would be:
Global cash prices and global futures prices would both rise
77
Which of the following is associated with Net Liquidation Value (NLV)?
London Span margin
78
Since 1984 the CME has had a close relationship with which of the following?
SGX
79
If an investor holds an underlying position in an asset and an opposing futures position, they are exposed to which of the following?
Basis risk
80
Put the following in the order of resources the ICE Clear Europe will use in the event of a clearing member defaulting:
Margin Clearing member's contribution into the Members' Default Fund Other members' contributions into the default fund £200m Lloyds insurance
81
Kate wishes to carry out a basis trade on the gilt future she has just sold. She therefore must:
Buy gilts on the LSE
82
commodity swap
A swap where one party pays fixed interest in exchange for an amount that reflects the price of the agreed commodity
83
Understanding layering is important in relation to:
Financial crime
84
Gamma is:
Positive for calls and puts
85
Which of the following is a feature of Euronext Derivatives' Universal Trading Platform?
Order-driven
86
What is the main objective of FPML?
To create a single readable file format for all OTC trades
87
A warrant on LME:
Gives right of possession to a specific lot of deliverable metal
88
purpose of price limits
Prevent prices moving too far or too fast during a trading session
89
An order to buy 25 long gilt contracts at £103.00, or lower, if the market was currently at £103.10 would be called:
A limit order

Derivatives (15 decks)

Brainscape helps you reach your goals faster, through stronger study habits.
© 2025 Bold Learning Solutions. Terms and Conditions