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 6 of 7

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Q51.
What is the main difference between a Call Option and a Put Option?

a.

Call Option gives the right to buy, and Put Option gives the right to sell.

b.

Call Option gives the right to sell, and Put Option gives the right to buy.

c.

Both Call and Put Options give the right to buy.

d.

Both Call and Put Options give the right to sell.

Discuss
Answer: (a).Call Option gives the right to buy, and Put Option gives the right to sell. Explanation:Call Option gives the right to buy an asset, and Put Option gives the right to sell an asset.
Q52.
What is the strike price in an options contract?

a.

The price at which the underlying asset is currently traded.

b.

The price specified at the time the parties enter into the option.

c.

The price paid by the buyer to the seller.

d.

The market price of the option.

Discuss
Answer: (b).The price specified at the time the parties enter into the option. Explanation:The strike price is the price at which the sale takes place and is specified at the time the parties enter into the option contract.
Q53.
What is the key difference between Futures and Forwards regarding fulfillment of the contract on the delivery date?

a.

Both parties of a futures contract must fulfill the contract on the delivery date, unlike a forward contract.

b.

Only the buyer in a futures contract must fulfill the contract on the delivery date, unlike a forward contract.

c.

Only the seller in a futures contract must fulfill the contract on the delivery date, unlike a forward contract.

d.

Unlike a forward contract, both parties of a futures contract do not need to fulfill the contract on the delivery date.

Discuss
Answer: (a).Both parties of a futures contract must fulfill the contract on the delivery date, unlike a forward contract. Explanation:In a futures contract, both parties must fulfill the contract on the delivery date, unlike a forward contract where the fulfillment is based on mutual agreement.
Q54.
How is the repricing of futures contracts different from forward contracts?

a.

Futures contracts are not repriced every day, unlike forward contracts.

b.

The repricing of futures contracts is done at the end of the contract, unlike forward contracts.

c.

Unlike forward contracts, futures contracts are repriced every day.

d.

Both futures and forward contracts are repriced in the same manner.

Discuss
Answer: (c).Unlike forward contracts, futures contracts are repriced every day. Explanation:Unlike forward contracts, the repricing of futures contracts is done daily. Any resulting profit or loss is debited or credited to the margin account of the broker.
Q55.
What has been the growth trend of derivatives market in India since June 2000?

a.

Declining growth

b.

Moderate growth

c.

Exponential growth

d.

No significant change

Discuss
Answer: (c).Exponential growth Explanation:The derivatives market in India has exhibited exponential growth both in terms of volume and the number of traded contracts since June 2000.
Q56.
What is the basic reason for the emergence of a well-functioning derivative market in India?

a.

Strict regulations

b.

Lack of investor confidence

c.

Efforts to strengthen investor confidence and promote free flow of funds

d.

Economic downturn

Discuss
Answer: (c).Efforts to strengthen investor confidence and promote free flow of funds Explanation:The emergence of a well-functioning derivative market in India is attributed to efforts to strengthen investor confidence and promote the free flow of funds in the context of liberalization, privatization, and globalization.
Q57.
Which of the following statements best defines Financial Risk Management?

a.

The process of evaluating and managing current financial risks for a firm

b.

The process of stabilizing a firm's balance sheet position

c.

Identifying and analyzing future financial risks for a firm

d.

Managing financial risks using derivatives for speculative purposes

Discuss
Answer: (c).Identifying and analyzing future financial risks for a firm Explanation:Financial Risk Management involves identifying, analyzing, evaluating, and managing current and possible future financial risks for a firm with the objective of reducing exposure to future financial risks.
Q58.
What is the primary purpose of using derivatives in financial risk management?

a.

To increase exposure to financial risks

b.

To stabilize the balance sheet position

c.

To speculate on future financial risks

d.

To diversify investment portfolios

Discuss
Answer: (b).To stabilize the balance sheet position Explanation:Derivatives are used as hybrid financial instruments to treat and manage financial risks, aiming to stabilize a firm's balance sheet position.
Q59.
What are the two main categories of derivatives based on the market place?

a.

Over the Counter (OTC) Derivatives and Embedded Derivatives

b.

Embedded Derivatives and Commodity Derivatives

c.

Over the Counter (OTC) Derivatives and Exchange Traded Derivatives

d.

Commodity Derivatives and Exchange Traded Derivatives

Discuss
Answer: (c).Over the Counter (OTC) Derivatives and Exchange Traded Derivatives Explanation:Derivatives are broadly classified into Over the Counter (OTC) Derivatives and Exchange Traded Derivatives based on the market place.
Q60.
What does a Forward contract represent in the context of financial derivatives?

a.

An agreement for the exchange of assets between two parties

b.

An agreement for the exchange of cash at a predetermined future date

c.

An agreement to buy or sell an underlying asset for cash

d.

An agreement between two parties to exchange an asset for cash at a future date

Discuss
Answer: (d).An agreement between two parties to exchange an asset for cash at a future date Explanation:A Forward contract represents an agreement between two parties to exchange an asset for cash at a predetermined future date.
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