Derivative Securities Quiz
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Questions and Answers

What are some examples of derivatives?

  • Stocks and bonds
  • Options and futures contracts (correct)
  • Real estate and commodities
  • Mutual funds and ETFs

    • How are derivatives classified?

  • By the industry sector, financial statements, and credit rating
  • By the type of underlying asset, relationship with the underlying asset, market of trade, and complexity (correct)
  • By the country of origin, market capitalization, and liquidity
  • By the financial institution, regulatory body, and investment strategy

    • What is one purpose of using derivatives?

  • Gain leverage and make a profit if the value of the underlying asset moves as expected (correct)
  • Stabilize the market and eliminate price volatility
  • Increase the liquidity of the underlying asset and reduce transaction costs
  • Guarantee a fixed rate of return and minimize investment risk

    • What does OTC stand for in the context of derivatives trading?

    <p>Over the counter</p> Signup and view all the answers

    What characteristic can make a derivative more complex?

    <p>Exotic features</p> Signup and view all the answers

    What is the main purpose of using futures contracts?

    <p>To hedge risk and for speculation</p> Signup and view all the answers

    Where are futures contracts and physical commodities typically traded?

    <p>Futures contracts in futures markets, physical commodities in cash markets</p> Signup and view all the answers

    What happens to the price of futures and the price of the underlying commodity as the maturity date approaches?

    <p>They converge</p> Signup and view all the answers

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