FREE CDP Derivatives Markets & Instruments Questions and Answers

Question 1

What is a derivative in financial markets?

Accepted Answer

A financial contract based on underlying assets.

Answer

A type of equity security.

Answer

A form of government bond.

Answer

An insurance policy for companies.

Question 2

Which of the following is NOT a common type of derivative?

Accepted Answer

Stocks

Answer

Futures

Answer

Options

Answer

Swaps

Question 3

What is the primary purpose of using derivatives?

Accepted Answer

To hedge against financial risk.

Answer

To issue new shares of stock.

Answer

To calculate company profits.

Answer

To acquire physical commodities.

Question 4

Which derivative instrument gives the holder the right but not the obligation to buy or sell an asset at a specified price?

Accepted Answer

Option contract

Answer

Futures contract

Answer

Forward contract

Answer

Swap agreement

Question 5

What distinguishes a futures contract from a forward contract?

Accepted Answer

Futures are standardized and exchange-traded.

Answer

Futures are traded privately; forwards on exchanges.

Answer

Futures are customizable; forwards are standardized.

Answer

There’s no difference.

Question 6

Which market participant primarily uses derivatives to manage and reduce financial risk?

Accepted Answer

Hedgers

Answer

Speculators

Answer

Arbitrageurs

Answer

Market makers

Question 7

What is 'margin' in derivatives trading?

Accepted Answer

Collateral to cover potential losses.

Answer

A fee for opening a trading account.

Answer

The profit earned from a trade.

Answer

A penalty for early settlement.

Question 8

Which derivative instrument involves swapping cash flows based on different interest rates?

Accepted Answer

Interest rate swap

Answer

Options contract

Answer

Futures contract

Answer

Forward contract

Question 9

What is an underlying asset in a derivative contract?

Accepted Answer

The asset from which a derivative derives its value.

Answer

The broker managing the trade.

Answer

A security held in escrow.

Answer

A derivative contract itself.