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 7 of 7

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Q61.
What is a key characteristic that distinguishes a futures contract from a forward contract?

a.

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

b.

Forward contracts are written by a clearing house, while futures contracts are written by the parties involved.

c.

Futures contracts involve a clearing house, while forward contracts do not.

d.

Forward contracts have a specified delivery date, while futures contracts do not.

Discuss
Answer: (c).Futures contracts involve a clearing house, while forward contracts do not. Explanation:A key characteristic distinguishing futures from forward contracts is that futures contracts involve a clearing house, providing standardization and a centralized exchange for buying and selling.
Q62.
What is the primary difference between a Call Option and a Put Option?

a.

A Call Option gives the right to buy an asset, while a Put Option gives the right to sell an asset.

b.

A Call Option gives the right to sell an asset, while a Put Option gives the right to buy an asset.

c.

Both Call and Put Options give the right to buy an asset.

d.

Both Call and Put Options give the right to sell an asset.

Discuss
Answer: (a).A Call Option gives the right to buy an asset, while a Put Option gives the right to sell an asset. Explanation:In options trading, a Call Option provides the right to buy an underlying asset, and a Put Option provides the right to sell an underlying asset.
Q63.
What distinguishes an American Option from a European Option based on maturity date?

a.

American Options can only be exercised on the maturity date.

b.

European Options can be exercised at any time up to the maturity date.

c.

American Options and European Options have the same exercise conditions.

d.

European Options can only be exercised on the maturity date.

Discuss
Answer: (b).European Options can be exercised at any time up to the maturity date. Explanation:The distinction lies in the exercise conditions. European Options can only be exercised on the maturity date, while American Options can be exercised at any time up to the maturity date.
Q64.
What is the purpose of a Credit Derivative, such as a Credit Default Swap (CDS)?

a.

To transfer credit risks from a protection seller to a protection buyer

b.

To speculate on future credit risks in the financial market

c.

To create a standardized contract for credit protection

d.

To facilitate the exchange of cash for a specified asset

Discuss
Answer: (a).To transfer credit risks from a protection seller to a protection buyer Explanation:Credit Derivatives, like Credit Default Swaps (CDS), are contracts designed to transfer credit risks from a protection buyer to a protection seller. They are used for managing and mitigating credit exposure.
Q65.
__________ is an instrument, which is embedded in another contract known as host contract.

a.

Embedded Derivative

b.

Commodity Derivative

c.

Over the Counter Derivative

d.

Exchange Traded Derivatives

Discuss
Answer: (a).Embedded Derivative Explanation:An embedded derivative is an instrument that is embedded in another contract, known as the host contract. This means that the embedded derivative is not a standalone contract but is part of another financial instrument. The host contract could be various financial instruments such as debt or equity instruments, leases, insurance contracts, or sale/purchase contracts. The purpose of an embedded derivative is often to modify the cash flows or risk profile of the host contract.
Q66.
In which of the following types of options does the owner have the right to require the sale to take place on (but not before) the maturity date.

a.

Call option

b.

Put option

c.

American option

d.

European option

Discuss
Answer: (d).European option Explanation:In a European option, the owner has the right to require the sale to take place on (but not before) the maturity date. This means that the option can only be exercised at the expiration date, not before. In contrast, an American option allows the owner to require the sale at any time up to the maturity date, providing more flexibility in terms of when the option can be exercised.
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