Quantitative Finance Risk & Derivatives

Question 1

What is the primary purpose of risk management in finance?

Accepted Answer

Identify and mitigate financial risks

Answer

Eliminate all investment risks

Answer

Guarantee profits in all market conditions

Answer

Avoid using risk assessment models

Question 2

Which type of derivative contract is used to hedge against price fluctuations?

Accepted Answer

Futures contract

Answer

Stock option

Answer

Corporate bond

Answer

Mutual fund

Question 3

What is Value at Risk (VaR) used for?

Accepted Answer

Estimate potential portfolio losses

Answer

Predict exact future returns

Answer

Increase investment volatility

Answer

Eliminate financial risk entirely

Question 4

Which financial instrument provides the right, but not the obligation, to buy or sell an asset?

Accepted Answer

Option

Answer

Forward contract

Answer

Exchange-traded fund

Answer

Government bond

Question 5

What is the main purpose of using derivatives in risk management?

Accepted Answer

Hedge against price fluctuations

Answer

Increase market volatility

Answer

Eliminate financial market risks

Answer

Guarantee profits in trading

Question 6

Which risk management strategy involves spreading investments across various assets?

Accepted Answer

Diversification

Answer

Leverage

Answer

Market timing

Answer

Speculative trading