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Which of the following statements is incorrect?
Statement 1: margin accounts between CCP-member and trader-broker are same
Statement 2: Maintenance margin is typically 75% of initial margin
Statement 3: margin posted by trader is passed by broker if broker is not a member.
Statement 4: in case of broker is not a member, then there will be two margin accounts, one between trader-broker, and another between broker-memberCorrectIncorrect
Initial margin requirements are same for broker-trader and CCP-member trades?CorrectIncorrect
A trader went short on MCS put option for $15 per lot and sold 100 lots of the same. Stock price of MCS is $90 and strike price of call option was $95. Calculate total margin required for the trade.CorrectIncorrect
A trader went short on AgPharma call option for $10 per lot and sold 50 lots of the same. Stock price of AgPharma is $100 and strike price of call option was $99. Calculate total margin required for the trade.CorrectIncorrect
Credit default swaps provide protection to buyer in case of default by counterparty in the initial contract?CorrectIncorrect
Monolines are companies that specialize in selling ____________________CorrectIncorrect
DPC is exposed to various risk factors but parent company is riskless due to creation of DPC.CorrectIncorrect
Derivative product company takes no __________ risk by taking offsetting positions with the parent company.CorrectIncorrect
Company A created a special purpose entity for its mortgage portfolio called company B. Mentioned below are some of the advantages of SPV to company A, please choose the correct option.
Statement 1: creation of separate legal entity
Statement 2: High credit rating for company B
Statement 3: Company A will be liable for derivative created out of portfolio by B
Statement 4: credit risk is eliminated for company ACorrectIncorrect
Read the following statements and choose the correct option.
Statement 1: probability of default by counterparty decreases as the life of derivative increases
Statement 2: market variables that determine the value of derivatives tend to move as life of derivative increasesCorrectIncorrect
Two counterparties Company A and Company B have the following derivative contracts outstanding, determine credit exposure of Company B in case of Company A defaults, with and without netting.
- Company A owes $50M to Company B
- Company B owes $10M to Company B
- Company A owes $10M to Company B
- Company B owes $55M to Company A
There is no CCP in OTC market and trades have been cleared bilaterally.CorrectIncorrect
Which of the following is most popular derivate in OTC markets?CorrectIncorrect
Read the following information about options below and choose the correct option.
Statement 1: Options positions require margin from both long as well as short positions.
Statement 2: Once premium paid buyer, has no future potential future liability.CorrectIncorrect
In case of default by one of the members of CCP, in order to fund losses arising out of default, please choose the correct order from below in which funds are used
1 – Initial Margin of defaulted member
2 – Equity of CCP
3 – Default fund contribution of defaulted member
4 – Default fund contribution of other membersCorrectIncorrect
Which of the following margin are not used in case of default of CCP member?CorrectIncorrect
As per initial margin requirements of an exchange, total initial margin for long & short contracts is equal/more than sum of the initial margins of long and short contract considered separately.CorrectIncorrect
Haircut is affected by increase in price volatility of the asset?CorrectIncorrect
Kane and Tom are both working in ABC which is a member of CCP. Today morning discussing about margin requirements, they came across a news that treasury interest rates are going to increase. They thought of in order to increase their interest income from margin preserved at CCP they will post treasury bills instead of cash. If X amount is required in cash as initial margin at CCP, what variation in margin amount will treasury bills bring intoCorrectIncorrect
Which of the following statements is/are correct?
Statement 1: CCP do not pay interest on initial margin but pay some interest on variation margin daily.
Statement 2: Treasury bill can be posted instead of cash against margin if interest paid seems less to members.CorrectIncorrect
Initial margin & variation margin requirements are designed in such a way to prevent any losses arising out of member’s default to CCP.CorrectIncorrect
Which of the following statements is/are incorrect about margin requirements?
Statement 1: Initial margin is not set by exchange, but exchange reserve the right to change it if there is any change in market conditions.
Statement 2: Margin for a futures contracts reflects the volatility of futures priceCorrectIncorrect
An investor sold 5 wheat contracts where one contract consists of 144 Kgs of wheat when the price per Kg of wheat was $40. Assuming initial margin requirement is $2500 and the maintenance margin is $1650 which is paid by the investor at the time T0, find out amount need to be paid by the investor to maintain margin requirements at T1 if price decreases to $38.75 and initial payment made by the investor at time T0 to fulfil margin requirements.CorrectIncorrect
Neil wants to enter a commodity trade and Nitin advised him to go through exchange for the trade. He told Neil about trading mechanism of central counterparty. Read the below mentioned statements by Nitin and choose the correct option.
Statement 1: CCP acts as counterparty to both sides of transactions and Neil needs to worry about creditworthiness of CCP.
Statement 2: In case Neil wants to close out his positions, he will have to ask his counterparty to close the position which he cannot refuse.CorrectIncorrect
Read of the following statements about exchange trading mechanism and choose the correct option?
Statement 1: Margin needs to be transferred from one trader to another against counterparty default.
Statement 2: Netting is a procedure of clubbing all short/long positions into a single position for ease of trading.CorrectIncorrect