CISI IoI Derivatives and Alternative Investments 2

Question 1

What is the maximum loss for the buyer of a put option?

Accepted Answer

The premium paid for the option

Answer

Unlimited

Answer

The strike price of the option

Answer

The current market value of the underlying asset

Question 2

Which alternative investment type involves investing in companies that are not listed on a public stock exchange?

Accepted Answer

Private equity

Answer

Hedge funds

Answer

Commodities

Answer

Real estate investment trusts (REITs)

Question 3

An investor sells (writes) a call option. What is their maximum potential loss?

Accepted Answer

Theoretically unlimited

Answer

Limited to the premium received

Answer

Limited to the strike price

Answer

Zero, as the writer always profits

Question 4

What is the role of a clearing house in derivatives trading?

Accepted Answer

To act as the counterparty to both buyer and seller, reducing counterparty risk

Answer

To provide investment advice to derivatives traders

Answer

To set the prices at which derivatives are traded

Answer

To regulate the derivatives market on behalf of the FCA

Question 5

Which of the following is a characteristic of investing in physical commodities such as gold?

Accepted Answer

They involve storage and insurance costs and generate no income

Answer

They always generate regular income through dividends

Answer

They can only be accessed through futures contracts

Answer

They are risk-free assets that never lose value

Question 6

What is a 'swap' in derivatives terminology?

Accepted Answer

A contract where two parties agree to exchange cash flows over a specified period

Answer

An agreement to exchange one security for another of equal value

Answer

A trade where an investor simultaneously buys and sells the same security

Answer

A type of option that can be exercised at any time before expiry