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.

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Financial Risk Management and Derivatives MCQs | Page 5 of 7

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Q41.
What is the primary characteristic of a futures contract?

a.

It is a contract to buy or sell an underlying asset for a price specified at any time.

b.

It is a contract to buy or sell an underlying asset for a price specified today at a predetermined time.

c.

It is a non-standardized contract negotiated between the parties involved.

d.

It is a contract written by the parties themselves without the involvement of a clearing house.

Discuss
Answer: (b).It is a contract to buy or sell an underlying asset for a price specified today at a predetermined time. Explanation:A futures contract is a contract to buy or sell the underlying asset for a price specified today at a pre-determined time.
Q42.
How does a buyer of a futures contract differ from a seller of a futures contract?

a.

The buyer promises to transfer the asset at a specified price, while the seller promises to pay the price.

b.

The buyer hopes for a decrease in the asset price, while the seller hopes for an increase.

c.

The buyer promises to pay the price at a specified time, while the seller promises to transfer the asset.

d.

The buyer and seller have identical roles and responsibilities.

Discuss
Answer: (b).The buyer hopes for a decrease in the asset price, while the seller hopes for an increase. Explanation:The buyer of a futures contract hopes or expects that the asset price will increase, while the seller hopes or expects that it will decrease in the near future.
Q43.
How does a futures contract differ from a forward contract?

a.

Futures contracts are non-standardized, while forward contracts are standardized.

b.

Futures contracts are negotiated between parties, while forward contracts are written by a clearing house.

c.

Futures contracts are standardized contracts written by a clearing house, while forward contracts are non-standardized contracts written by the parties themselves.

d.

Futures contracts are used for commodities, while forward contracts are used for financial assets.

Discuss
Answer: (c).Futures contracts are standardized contracts written by a clearing house, while forward contracts are non-standardized contracts written by the parties themselves. Explanation:A futures contract is a standardized contract written by a clearing house that operates an exchange, while a forward contract is a non-standardized contract written by the parties themselves.
Q44.
What is "Marking to Market" in the context of futures contracts?

a.

It is the process of determining the initial margin for a futures contract.

b.

It is the process of settling the difference in the agreed-upon price and the daily futures price.

c.

It is the process of negotiating the terms of a futures contract.

d.

It is the process of physical delivery of the underlying asset in a futures contract.

Discuss
Answer: (b).It is the process of settling the difference in the agreed-upon price and the daily futures price. Explanation:Marking to Market is the process of settling the difference in the prior agreed-upon price and the daily futures price in a futures contract.
Q45.
What is the essential characteristic of futures contracts regarding their terms?

a.

The terms of futures contracts can be changed during the lifetime of the contract.

b.

The terms of futures contracts are determined by the clearing house.

c.

The terms of futures contracts cannot be changed during the lifetime of the contract.

d.

The terms of futures contracts are customized for each trade.

Discuss
Answer: (c).The terms of futures contracts cannot be changed during the lifetime of the contract. Explanation:Futures contracts are transferrable legal agreements, and their terms cannot be changed during the lifetime of the contract.
Q46.
What are examples of commodity futures?

a.

Stock Index futures, Interest Rates Futures, Currency Futures

b.

Rice, Wheat, Tea, Cotton

c.

Treasury bills and bonds, Corporate debentures, Commercial papers

d.

Equities and Bonds

Discuss
Answer: (b).Rice, Wheat, Tea, Cotton Explanation:Commodity futures may be on any underlying commodity like rice, wheat, tea, cotton, and so on.
Q47.
In what form are Stock Index futures traded?

a.

On the basis of individual share prices

b.

On the basis of interest or price indices of fixed-interest-bearing securities

c.

On the basis of different share price indices rather than individual share prices

d.

On the basis of commodity prices

Discuss
Answer: (c).On the basis of different share price indices rather than individual share prices Explanation:Stock Index futures are traded on the basis of different share price indices rather than individual share prices.
Q48.
What is the prime motive for futures contracts?

a.

Actual delivery of contracted assets

b.

Speculation and hedging

c.

Realizing the money difference through actual delivery

d.

Hedging and reducing speculation

Discuss
Answer: (b).Speculation and hedging Explanation:The prime motive for futures is not actual delivery but hedging and speculation. They are mostly paper contracts entered into by the counterparties with an objective to realize the money difference.
Q49.
What is the main characteristic of options contracts regarding the buyer's obligation?

a.

The buyer has the obligation to buy the underlying asset.

b.

The buyer has the obligation to sell the underlying asset.

c.

The buyer has the right, but not the obligation, to buy or sell the underlying asset.

d.

The buyer has no rights or obligations.

Discuss
Answer: (c).The buyer has the right, but not the obligation, to buy or sell the underlying asset. Explanation:Unlike a forward contract, the buyer of an options contract has the right, but not the obligation, to buy or sell the underlying asset at the agreed price on or before the specified period of time.
Q50.
What is the classification of options based on the maturity date?

a.

European Option and American Option

b.

Call Option and Put Option

c.

Long Option and Short Option

d.

Spot Option and Forward Option

Discuss
Answer: (a).European Option and American Option Explanation:Options are classified based on the maturity date into European Option (exercise allowed only on maturity) and American Option (exercise allowed at any time up to maturity).
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