Derivatives and Risk Management Quiz
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Questions and Answers

What is the main purpose of hedging with derivatives?

  • To eliminate counterparty risk
  • To increase leverage on holdings
  • To speculate on the price of the commodity
  • To manage risk and protect profits (correct)

    • Where are derivatives commonly traded?

  • Exclusively through brokerages
  • Exclusively on regulated exchanges
  • Both on exchanges and OTC (correct)
  • Only between private parties

    • What is a potential risk associated with OTC-traded derivatives?

  • Regulatory intervention
  • Lack of liquidity
  • Market volatility
  • Counterparty risk (correct)

    • How does a currency derivative help in hedging risk?

    <p>By locking in a specific exchange rate</p> Signup and view all the answers

    Which exchange is mentioned as one of the world's largest derivatives exchanges?

    <p>Chicago Mercantile Exchange (CME)</p> Signup and view all the answers

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