Book 3 FMP Futures and Options Test (Live Class)

Question 1 of 20

1. Question

1 point(s)

Consider an investor holding two options position on same underlying and with the same maturity date, First one is 100 number of Long Put the stock with a strike price $25 and a second position in 50 numbers of Short Call with a strike price of $10. At the maturity date, the underlying price is $15 Calculate the payoff at the maturity.

A $1000
B $750
C $1250
D $250

Question 2 of 20

2. Question

1 point(s)

Consider an investor holding three options position in various stocks. All the options in Position holdings are at maturity , A long call option on A Ltd stock where X is $60, the premium paid is $3 and S0 is $75, A Long put on B ltd stock with X is $20 premium is $1 and S0 is $22 and Short Call on C Ltd stock with X of $100, S0 = $120 and premium is $5. Find out the profit on the date of maturity.

A +$4
B -$4
C +$14
D – $14

Question 3 of 20

3. Question

1 point(s)

Which one of the following is not the character of the futures contract?

A Quality of the underlying
B Delivery location
C Contract execution time
D Limit on price movement

Question 4 of 20

4. Question

1 point(s)

An investor with 5 Long Corn futures contract entered into at the price of $3500. Next day price of corn futures gone up to $3700. By the end of the 3^rd-day price of corn futures dropped to $3000. Find out the variation margin need to be posted at the end of the day 3 if the initial margin is $7000 and maintenance margin is $5500.

A $2500
B $2000
C $1500
D $1000

Question 5 of 20

5. Question

1 point(s)

Which one of the following is not the source of basis risk.

An Interruption of the convergence of the futures and spot prices
B Changes in the interest rate
C Liquidity mismatch
D Movement in the futures price with respect to the underlying price.

Question 6 of 20

6. Question

1 point(s)

Which one of the following statement is incorrect?

Clearing ring is the mechanism to reduce counterparty exposure between three or more exchange members.
CCPs can be operated directly by exchanges or operated by the third party
Direct clearing refers to clearing through a central counterparty in order to reduce counterparty risk
SPVs are not well funded by the parent companies but DCPs are well funded.

Question 7 of 20

7. Question

1 point(s)

Which one of the following statement is incorrect?

Most futures contracts are closed out or reversed prior to settlement date.
In most of the cases, Long futures positions are held with the intention to take delivery of the underlying goods.
The purchaser of the futures contract is having a long position in underlying.
Speculators use a futures contract to gain exposure to change in the price whereas hedger uses it to reduce the exposure to price change.

Question 8 of 20

8. Question

1 point(s)

Mumbai futures exchange is about to open its trading at 9.30 AM IST. At time t1 open interest in Gold24 was 500 long contracts. At time t2 total open interest in Gold24 was 300 short contracts. In between t2 to t3 only two trades were entered, Mac entered a Limit order for Short 300 Gold24 Futures at $500 and Sam entered a Limit order for Long 500 Gold24 at $495 i.e. open contracts of 300 shorts and 500 long Gold24 in exchange. What is the open interest in Gold24 at time t3?

300 contracts
200 contracts
100 Contracts
600 Contracts

Question 9 of 20

9. Question

1 point(s)

Bafta is speculator planning to short Mac Ltd stocks currently trading at $50 as he thinks the stock price might fall in next 10 days. To execute the short sell Bafta borrowed 200 stocks of Mac Ltd from Iffa who bought 300 these stocks just a day before at $48 and (Bafta) sold it in the spot. After two days company issued dividend worth $2. On the 10^th day, price increased to $60 and Iffa asked to Bafta to return stocks so that he can sell and earn a profit. Stocks were returned by the Bafta at the same time. Iffa waited for two days and sold these stocks at $62. Calculate the profit or loss to Bafta and Iffa.

Bafta – Profit $2000 – and Iffa – Profit – $2800
Bafta – Profit $2400– and Iffa – profit – $3200
Bafta – Loss $2000 – and Iffa – Profit – $2800
Bafta – Loss $2400 – and Iffa – profit – $3200

Question 10 of 20

10. Question

1 point(s)

Future contract and forward contract are similar in the following properties except for

Both can be settled by delivery or in cash.
Both have zero value at the time of inception.
Both have Long and short position holders
Both have single clearinghouse as counterparty.

Question 11 of 20

11. Question

1 point(s)

Mr Manmohan took a position in short put $5 in App Inc with a strike price of $25 and long call position in Store Inc with a strike price of $30 and paid a premium $6 for the same. At the expiration date, underlying prices for App Inc and Store INC are $20 and $45 respectively. Find out the net payoff on the date of expiration.

$30
$20
$15
$10

Question 12 of 20

12. Question

1 point(s)

Consider the following statements and identify the correct statements among them:

European style option have lesser volume of trades than American options.
Linear derivatives involve futures, forwards and swaps while non-linear covers most other derivatives.
European options can't be traded before the date of expiration of the contract.
Futures contracts have more transaction fees than forwards on account of the role played by the CCP.

Question 13 of 20

13. Question

1 point(s)

Identify the fundamental difference between linear and non-linear derivatives:

Linear derivatives are whose payoffs vary in linear fashion with changes in the underlying asset price or reference rate while payoff for non-linear is not linear.
Linear derivatives are products such as futures, forwards, and swaps while Non-linear derivatives are contracts with option-like payoffs, including caps, floors, and swaptions.
Non-linear derivatives are more complex in nature than linear derivatives.
Linear derivatives are used in speculative trading while non-linear derivatives are used in hedging activities.

Question 14 of 20

14. Question

1 point(s)

Consider the following statements and identify the incorrect statements among them.

The core function of an exchange is to ensure fair and orderly trading and the efficient dissemination of price information for any securities trading on that exchange.
Follow-on public offer and initial public offer are the tools with companies to raise money fron the exchange markets.
Investment bank private placements for raising capital for companies from exchange.

1 only
2 only
3 only
None of the above

Question 15 of 20

15. Question

1 point(s)

Which of the following is incorrect regarding mark-to-market process?

Mark to market (MTM) is a method of measuring the fair value of accounts that can fluctuate over time, such as assets and liabilities.
MTM is a measure to asste's true value in volatile times.
Mark to market is an alternative to historical cost accounting, which maintains an asset's value at the original purchase cost.
Mark to market is an accounting practice that involves adjusting the value of an asset to reflect its value as determined by current market conditions.

Question 16 of 20

16. Question

1 point(s)

Choose the statements which clearly states the difference between Clearing and settlement.

Clearing relates more with netting while clearing relates more closely with margining.
Settlement is the actual exchange of money, or some other value, for the securities while clearing is the process of updating the accounts of the trading parties and arranging for the transfer of money and securities.
Clearing as a function is done by the central clearing party while settlement is the function of the subsidiary of the CCP which is the separate arm of CCP with no legal liability.
Settlement is the final step of contract finalization while clearing involves the paperwork of the exchange before providing traders or, dealers to exchange or trade the agreement.

Question 17 of 20

17. Question

1 point(s)

Which of the following are the difference between forwards and futures?

Futures are traded on exchange while forwards are not.
Forwards are settled mark to market while futures are settled at expiration
Forwards are traded with initial margin while forwards are not

1, 2 only
3 only
2, 3 only
All of the above

Question 18 of 20

18. Question

1 point(s)

If an investor enters in a short position in oil futures contract with,

Initial margin = $2000
Maintenance margin = $1500
Contract price = $950
Contract size = 100

If on the second day, the price moves to $910 While on the second day it falls abysmally to $870, Which of the following are the closest to the variation margin required on the end of second day?

$0 because of short position
$0 because of long position
$800 because of short position
$400 because if short position

Question 19 of 20

19. Question

1 point(s)

Which of the following are correct regarding hedging?

Short hedge is protection against the price decrease in long position.
Long hedge is protection against the price increase in short position.

I only
II only
I and II both
None if the above

Question 20 of 20

20. Question

1 point(s)

A risk manager of an automobile company is looking to eliminate basis risk semi-conductor chips due to global shortage of same. On further research the manager calculates the correlation between semi-conductor and oil futures to be 0.945. Given that the annual standard deviation of semi-conductor and oil futures to be $0.23 and $0.34 respectively, what calculate the hedge ratio?

0.68
1.4
0.64
1.48

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