Financial Risk Management and Derivatives MCQs

Welcome to our comprehensive collection of Multiple Choice Questions (MCQs) on Financial Risk Management and Derivatives, a fundamental topic in the field of IC 89 Management Accounting. Whether you're preparing for competitive exams, honing your problem-solving skills, or simply looking to enhance your abilities in this field, our Financial Risk Management and Derivatives MCQs are designed to help you grasp the core concepts and excel in solving problems.

In this section, you'll find a wide range of Financial Risk Management and Derivatives mcq questions that explore various aspects of Financial Risk Management and Derivatives problems. Each MCQ is crafted to challenge your understanding of Financial Risk Management and Derivatives principles, enabling you to refine your problem-solving techniques. Whether you're a student aiming to ace IC 89 Management Accounting tests, a job seeker preparing for interviews, or someone simply interested in sharpening their skills, our Financial Risk Management and Derivatives MCQs are your pathway to success in mastering this essential IC 89 Management Accounting topic.

Note: Each of the following question comes with multiple answer choices. Select the most appropriate option and test your understanding of Financial Risk Management and Derivatives. You can click on an option to test your knowledge before viewing the solution for a MCQ. Happy learning!

So, are you ready to put your Financial Risk Management and Derivatives knowledge to the test? Let's get started with our carefully curated MCQs!

Financial Risk Management and Derivatives MCQs | Page 4 of 7

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Discuss
Answer: (c).It is never involved; transactions are mostly settled by offsetting positions in derivatives themselves. Explanation:Usually in derivative transactions, the taking or making of delivery of underlying assets is not involved; the transactions are mostly settled by offsetting positions in derivatives themselves.
Discuss
Answer: (c).They are subject to greater exposure of operational risks, counterparty risks, and liquidity risks. Explanation:Privately negotiated customised and OTC-traded financial derivatives are subject to greater exposure of operational risks, counterparty risks, and liquidity risks.
Q33.
According to The Economist magazine, what was the approximate size of the over-the-counter (OTC) derivatives market as of June 2011?
Discuss
Answer: (b).$700 trillion Explanation:The over-the-counter (OTC) derivatives market amounted to approximately $700 trillion as reported by The Economist magazine.
Discuss
Answer: (b).The market value greatly exaggerates the true credit risk. Explanation:Some economists argue that the "notional" values greatly exaggerate the market value and the true credit risk faced by the parties involved.
Q35.
According to the Bank of International Settlements, what percentage of the total notional amount of OTC derivatives are interest rate related contracts?
Discuss
Answer: (c).67% Explanation:According to the Bank of International Settlements, 67% of the total notional amount of OTC derivatives are interest rate-related contracts.
Discuss
Answer: (b).Money exchange occurs on the execution date when the buyer pays, and the seller delivers the underlying asset. Explanation:In a forward contract, no exchange of money takes place until the execution date when the buyer pays the cash, and the seller delivers the underlying asset.
Discuss
Answer: (b).They are tailored to the specific needs of individual counterparties. Explanation:Forward contracts are customised and tailor-made to cater to the specific needs of individual counterparties.
Discuss
Answer: (b).By physical delivery of the underlying asset. Explanation:Forward contracts are mostly settled by actual delivery, where the buyer pays cash, and the seller delivers the underlying asset.
Q39.
What is a notable characteristic of the size and variety of forward contracts compared to other derivatives like Futures?
Discuss
Answer: (b).They are generally larger in size and more diverse in nature. Explanation:Forward contracts are generally found to be much larger in size and variety in nature than other derivatives like Futures.
Q40.
What is the risk associated with counterparties in forward contracts due to the absence of secondary markets?
Discuss
Answer: (a).Credit risk. Explanation:In the absence of secondary markets, counterparties in forward contracts are locked into the contract and become subject to the risks of failure to perform by either party or the risk of subsequent price fluctuations and interest/exchange rates changes.
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