Questions and Answers
1. All of the following statement are true about DERIVATIVES?
I. Derivatives are financial contracts whose value is dependent on an underlying asset or group of assets.
II. The commonly used assets are stocks, bonds, currencies, commodities and market indices.
III. The value of the underlying assets keeps changing according to market conditions.
IV. The basic principle behind entering into derivative contracts is to earn profits by speculating on the value of the underlying asset in future.
A. I only
B. I and II only
C. II, III and IV only
D. All of the above
2. The are several major types of derivative contracts EXCEPT?
A. Options
B. Forwards
C. Futures and Swaps.
D. Bonds
3. Each types of individual below who participates in derivatives market will have an objective to participate in the derivative market EXCEPT?
A. Hedgers and Speculators
B. Margin traders
C. Arbitrageurs
D. None of the above
4. All of the following statements are true about on how to trade in derivatives market EXCEPT?
A. You not need to understand the functioning of derivatives markets before trading. The strategies applicable in derivatives are completely different from that of the stock market.
B. The derivative market requires you to deposit a amount before starting trading. The amount cannot be withdrawn until the trade is settled. Moreover, you need to replenish the amount when it falls below the minimum level.
C. You have an active trading account that permits derivative trading. If you are using the services of a broker, then you can place orders online or on the phone.
D. For the selection of stocks, you have to consider factors like cash in hand, the requirements, the price of the contract and that of the underlying shares. Make sure that everything is as per your budget.
You can choose to stay invested till the expiry to settle the trade. In this scenario, either pay the entire outstanding amount or enter into an opposing trade.
| 5. Futures markets have been around since the time of Aristotle. TRUE / FALSE |
6.. Futures are __________ in which the value depends on the underlying asset it is derived from.
A. Derivatives
B. Equities
C. Bonds
D. Securities