Post Session Quiz - Introduction To Derivatives

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  • 1/7 Questions

    An OTC derivative are

    • Customized, privately negotiated contract that is traded directly between counterparties
    • Centralised trading products
    • Standardised products
    • Without any credit risk
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Post Session Quiz - Introduction To Derivatives - Quiz
About This Quiz

The 'Post session Quiz - Introduction to derivatives' assesses understanding of derivatives, focusing on types, trading venues, and risk management. It covers OTC and exchange-traded derivatives, global market trends, and specific instruments like CDS for default risk management.

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  • 2. 

    Globally , OTC Market is bigger than the Exchange traded derivatives market , unlike Brazil , where the opposite is true.

    • True

    • False

    Correct Answer
    A. True
    Explanation
    The statement implies that in most countries, the OTC (over-the-counter) market is larger in size compared to the exchange traded derivatives market. However, in Brazil, the opposite is true, meaning that the exchange traded derivatives market is bigger than the OTC market.

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  • 3. 

    In brazil , more than 80 % of the interdealer derivatives trading happens through Exchanges ?

    • True

    • False

    Correct Answer
    A. True
    Explanation
    The given statement suggests that in Brazil, more than 80% of the interdealer derivatives trading occurs through exchanges. This means that a significant majority of the trading in this market is conducted on organized platforms rather than directly between dealers. This information implies that exchanges play a crucial role in facilitating derivatives trading in Brazil, indicating that the statement is true.

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  • 4. 

    An Exchange Traded derivative is a contract which has

    • Standardised features

    • Greater transperancy

    • Settlement months specified

    • All the options

    • Credit risk borne by the exchange

    Correct Answer
    A. All the options
    Explanation
    The correct answer is "All the options." This means that an Exchange Traded derivative contract has standardized features, greater transparency, settlement months specified, and the credit risk is borne by the exchange.

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  • 5. 

    Which is the highest traded derivative in the market gobally?

    • Interest rate derivatives

    • Credit derivatives

    • Equity derivative

    Correct Answer
    A. Interest rate derivatives
    Explanation
    Interest rate derivatives are the highest traded derivatives in the global market because they are widely used by financial institutions, corporations, and investors for hedging against interest rate fluctuations. These derivatives allow market participants to manage and speculate on changes in interest rates, which are crucial in various financial transactions such as loans, bonds, and mortgages. The high trading volume of interest rate derivatives can be attributed to the significant impact of interest rates on the global economy and the need for market participants to mitigate their interest rate risk.

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  • 6. 

    Which of the following derivative are used for managing the default Risk ? (can choose more than one option)

    • CDS

    • Credit Spread options

    • Index Futures

    • Equity options

    Correct Answer(s)
    A. CDS
    A. Credit Spread options
    Explanation
    CDS (Credit Default Swaps) and Credit Spread options are commonly used derivatives for managing default risk. CDS allows investors to protect against the risk of default by buying insurance on a bond or loan. Credit Spread options provide the right to buy or sell a security at a specified spread over a reference rate, allowing investors to hedge against credit risk. Index Futures and Equity options are not specifically designed for managing default risk, although they may have some indirect impact on overall portfolio risk management.

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  • 7. 

    What are the major uses of derivatives products? ( can choose more than one option)

    • Hedging risk

    • Leveraging effect

    • Speculation

    • Arbitrage

    • Delivery

    Correct Answer(s)
    A. Hedging risk
    A. Leveraging effect
    A. Speculation
    A. Arbitrage
    Explanation
    Derivatives products are widely used for various purposes. One major use is hedging risk, where investors use derivatives to offset potential losses in their portfolios. Another major use is the leveraging effect, where investors can amplify their returns by using derivatives. Speculation is also a common use, as investors can take positions on the future price movements of underlying assets. Lastly, derivatives can be used for arbitrage, where investors take advantage of price discrepancies between different markets or instruments. Delivery, however, is not a major use of derivatives products.

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Quiz Review Timeline (Updated): Mar 16, 2023 +

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  • Current Version
  • Mar 16, 2023
    Quiz Edited by
    ProProfs Editorial Team
  • Aug 29, 2012
    Quiz Created by
    Anurag_quiz
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