CPFM Options, Futures, and Derivatives 3

Question 1

Theta in option pricing primarily represents:

Accepted Answer

Time decay of the option

Answer

Interest rate sensitivity

Answer

Volatility sensitivity

Answer

Underlying price sensitivity

Question 2

A company expecting to receive euros in 90 days can hedge currency risk by:

Accepted Answer

Selling euro futures

Answer

Buying euro futures

Answer

Buying euro call options

Answer

Doing nothing

Question 3

The intrinsic value of an in-the-money call option equals:

Accepted Answer

Underlying price minus strike

Answer

Premium minus strike

Answer

Strike minus underlying price

Answer

Premium plus time value

Question 4

A protective put strategy involves:

Accepted Answer

Owning stock and buying a put

Answer

Owning stock and selling a call

Answer

Buying a call and selling a put

Answer

Selling stock and buying a put

Question 5

Which derivative obligates both parties to transact, rather than granting a right?

Accepted Answer

Forward contract

Answer

Call option

Answer

Put option

Answer

Warrant

Question 6

Credit default swaps (CDS) are primarily used to:

Accepted Answer

Transfer credit risk of a reference entity

Answer

Hedge interest rate risk

Answer

Speculate on currency moves

Answer

Lock in commodity prices

Question 7

The minimum amount that must be maintained in a futures margin account is the:

Accepted Answer

Maintenance margin

Answer

Initial margin

Answer

Variation margin

Answer

Settlement margin