MCQ Quiz

Question 1 of 21

A put option buyer will most likely exercise at maturity when which condition holds?

The underlying price is below the exercise price
The underlying price is above the exercise price
The premium paid was high

Question 2 of 21

In an interest rate swap, which party most likely receives a net payment for a period when the market reference rate exceeds the fixed rate?

Fixed-rate payer
Floating-rate payer
Neither party

Question 3 of 21

An option buyer most likely pays a premium in exchange for which right?

The right to transact the underlying in the future at a pre-agreed exercise price
The obligation to exchange the underlying each day
The guarantee of a positive profit at maturity

Question 4 of 21

If a futures margin account falls below the maintenance margin, the counterparty must most likely restore it to which level?

The initial margin
Zero
The previous day's settlement price

Question 5 of 21

A swap is most accurately described as which of the following?

A firm commitment to exchange a series of cash flows in the future
A right to choose whether a single trade settles
A standardized exchange contract with only one final cash flow

Question 6 of 21

Which position most likely benefits from price appreciation of the underlying over the life of the contract?

Forward contract buyer
Forward contract seller
Neither buyer nor seller

Question 7 of 21

The payoff to an option buyer at maturity is most likely which of the following?

Always zero or positive
Always equal to the premium paid
Always negative if the option expires worthless

Question 8 of 21

A long forward position has a positive payoff at maturity when which condition holds most likely?

The spot price at maturity exceeds the forward price
The initial spot price exceeds the forward price
The forward price exceeds the spot price at maturity

Question 9 of 21

Which feature most likely distinguishes a futures contract from a forward contract?

Daily settlement of gains and losses through mark to market
A pre-agreed price for future exchange
A maturity date for the contract

Question 10 of 21

A call option is in the money when which condition is most accurate?

The spot price exceeds the exercise price
The exercise price exceeds the spot price
The option premium equals zero

Question 11 of 21

A call option gives the buyer the most likely right to do which of the following?

Buy the underlying at the exercise price
Sell the underlying at the exercise price
Receive daily margin from the exchange

Question 12 of 21

Under a swap contract, the counterparty paying the variable cash flows is most likely called the:

Floating-rate payer
Fixed-rate payer
Call option purchaser

Question 13 of 21

A forward contract is most accurately described as which of the following?

An OTC derivative with flexible and customizable terms
An exchange-traded derivative with daily settlement
A contingent claim that the buyer may ignore

Question 14 of 21

At futures contract initiation, where is the required initial margin most accurately held?

In a futures margin account held at the exchange
With the option buyer as a premium reserve
Inside the underlying asset account

Question 15 of 21

In a credit default swap, the credit protection buyer most likely pays what to the seller?

A fixed CDS spread
The notional principal at inception
The issuer's cash bond coupon

Question 16 of 21

Once the upfront premium has been paid, who most likely has no counterparty credit risk to the option buyer?

The option seller
The option buyer
Both counterparties equally

Question 17 of 21

Which derivative type most likely requires both counterparties to perform under the contract?

Firm commitment
Contingent claim
European option premium

Question 18 of 21

Which statement most accurately contrasts a forward commitment with a contingent claim?

A forward commitment has a linear payoff, while an option has a non-linear payoff
A forward commitment gives the buyer the right but not the obligation to settle
An option always has zero initial value because no premium is paid

Question 19 of 21

A credit protection buyer without the related cash bond exposure is most likely seeking to gain from what?

Higher issuer credit spreads
Lower issuer credit spreads
A higher fixed swap rate

Question 20 of 21

A European option may most likely be exercised at which time?

Only at maturity
At any time from inception until maturity
Only on the trade date

Question 21 of 21

The contingent payment under a CDS equals the most likely which amount for the contract notional?

Loss given default
Initial margin
Intrinsic value

Forward Commitment and Contingent Claim Features and Instruments (Katas)

First Principles Thinking: put exercise condition

First Principles Thinking: netting fixed versus floating

First Principles Thinking: option right

First Principles Thinking: futures margin mechanics

First Principles Thinking: swap definition

First Principles Thinking: long forward exposure

First Principles Thinking: option payoff floor

First Principles Thinking: forward payoff sign

First Principles Thinking: futures mark to market

First Principles Thinking: call intrinsic value

First Principles Thinking: call versus put

First Principles Thinking: swap party labels

First Principles Thinking: forward definition

First Principles Thinking: margin location

First Principles Thinking: CDS periodic premium

First Principles Thinking: one-sided credit exposure

First Principles Thinking: firm commitment

First Principles Thinking: linear versus non-linear exposure

First Principles Thinking: CDS directional view

First Principles Thinking: European exercise style

First Principles Thinking: CDS settlement amount