FIA Derivatives & Risk Products 4

Question 1

Which risk measure captures the maximum potential loss over a specified time horizon at a given confidence level?

Accepted Answer

Value at Risk (VaR)

Answer

Expected shortfall

Answer

Beta

Answer

Duration

Question 2

A 'knock-in' barrier option becomes active only when:

Accepted Answer

The underlying touches a specified barrier price

Answer

The option expires in the money

Answer

Implied volatility exceeds a threshold

Answer

The holder exercises the option early

Question 3

In a commodity swap, the 'fixed price payer' benefits when:

Accepted Answer

Commodity prices rise above the fixed price

Answer

Commodity prices fall below the fixed price

Answer

Interest rates rise during the swap term

Answer

The commodity's storage costs increase

Question 4

What does 'theta' represent in options pricing?

Accepted Answer

Rate of time decay in an option's value

Answer

Sensitivity of option price to changes in volatility

Answer

Sensitivity of delta to changes in the underlying

Answer

Change in option price for a 1% move in the risk-free rate

Question 5

Which of the following best describes 'mark-to-market' for a futures position?

Accepted Answer

Daily settlement of gains and losses through the margin account

Answer

Recording futures at original cost until maturity

Answer

Netting offsetting futures positions at year-end

Answer

Pricing futures based on historical average prices

Question 6

A credit-linked note (CLN) is best described as:

Accepted Answer

A funded instrument that embeds a credit default swap

Answer

A pure credit derivative with no funded component

Answer

An equity derivative linked to a credit index

Answer

A repo agreement collateralized by corporate bonds

Question 7

What is the primary advantage of exchange-traded derivatives over OTC derivatives?

Accepted Answer

Elimination of counterparty risk via central clearing

Answer

Greater customization of contract terms

Answer

Lower regulatory oversight

Answer

More flexibility in settlement dates