Podcast
Questions and Answers
Which of the following derivatives are traded directly between two parties without going through an exchange?
Which of the following derivatives are traded directly between two parties without going through an exchange?
Exchange-traded derivatives are unregulated and do not require an intermediary.
Exchange-traded derivatives are unregulated and do not require an intermediary.
False
What is a forward contract?
What is a forward contract?
An agreement to buy or sell an asset at a predetermined price on a specific future date.
A forward contract includes an asset, quantity, and a specific __________ to be paid at expiration.
A forward contract includes an asset, quantity, and a specific __________ to be paid at expiration.
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Match the following types of derivatives with their appropriate category:
Match the following types of derivatives with their appropriate category:
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Which of the following is NOT classified as an OTC traded derivative?
Which of the following is NOT classified as an OTC traded derivative?
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A common derivative includes unique financial instruments that are widely used in trading.
A common derivative includes unique financial instruments that are widely used in trading.
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Name one type of derivative that is commonly traded.
Name one type of derivative that is commonly traded.
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What happens when a forward buyer's profit exceeds the contract price?
What happens when a forward buyer's profit exceeds the contract price?
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A forward contract can be traded on an organized stock exchange.
A forward contract can be traded on an organized stock exchange.
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What is a key feature of a forward contract related to payment at the signing?
What is a key feature of a forward contract related to payment at the signing?
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In a forward contract, the delivery of the asset is essential on the date of _____ of the contract.
In a forward contract, the delivery of the asset is essential on the date of _____ of the contract.
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Match the following characteristics of forward contracts with their descriptions:
Match the following characteristics of forward contracts with their descriptions:
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Which of the following best describes the linearity feature of a forward contract?
Which of the following best describes the linearity feature of a forward contract?
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A forward contract requires both parties to pay a deposit at the inception of the agreement.
A forward contract requires both parties to pay a deposit at the inception of the agreement.
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What role does a third party play in a forward rate contract?
What role does a third party play in a forward rate contract?
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What does 'marked to the market' imply for futures contracts?
What does 'marked to the market' imply for futures contracts?
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Futures contracts always require the physical delivery of the underlying asset at maturity.
Futures contracts always require the physical delivery of the underlying asset at maturity.
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What is the primary purpose of entering into a futures contract?
What is the primary purpose of entering into a futures contract?
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In a futures contract, both parties experience _______ gains or losses due to price fluctuations.
In a futures contract, both parties experience _______ gains or losses due to price fluctuations.
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Match the features to their corresponding contract types:
Match the features to their corresponding contract types:
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How are profits and losses calculated in a futures contract?
How are profits and losses calculated in a futures contract?
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Futures contracts can only be traded on unorganized exchanges.
Futures contracts can only be traded on unorganized exchanges.
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What are the essential differences between forward and future contracts?
What are the essential differences between forward and future contracts?
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What is the primary role of the premium in an option contract?
What is the primary role of the premium in an option contract?
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What happens to the premium obtained by options writers during periods of high interest rates?
What happens to the premium obtained by options writers during periods of high interest rates?
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An option contract obligates the option buyer to exercise the option.
An option contract obligates the option buyer to exercise the option.
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What are the two parties involved in an option contract called?
What are the two parties involved in an option contract called?
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The profit for the buyer of a call option is unlimited when the spot price is higher than the strike price.
The profit for the buyer of a call option is unlimited when the spot price is higher than the strike price.
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An option grants the buyer the right to __________ the underlying asset at a predetermined price.
An option grants the buyer the right to __________ the underlying asset at a predetermined price.
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What is the maximum loss for a buyer of a call option?
What is the maximum loss for a buyer of a call option?
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In a call option, if the spot price is below the strike price at expiration, the option will be __________.
In a call option, if the spot price is below the strike price at expiration, the option will be __________.
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Match the following terms with their definitions:
Match the following terms with their definitions:
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Match the following terms related to call options with their descriptions:
Match the following terms related to call options with their descriptions:
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What is the expiry date in an options contract?
What is the expiry date in an options contract?
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What does a call option provide its buyer?
What does a call option provide its buyer?
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Options traded over-the-counter (OTC) are backed by a Clearing Corporation.
Options traded over-the-counter (OTC) are backed by a Clearing Corporation.
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What obligation does the seller of a call option have?
What obligation does the seller of a call option have?
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The loss for the seller of a call option is capped.
The loss for the seller of a call option is capped.
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What happens to the writer of a call option if the spot price at expiration exceeds the strike price?
What happens to the writer of a call option if the spot price at expiration exceeds the strike price?
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What is the lot size for Ambuja Cement's index future contract?
What is the lot size for Ambuja Cement's index future contract?
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The tick size for Ambuja Cement's index future contract is Rs. 0.10.
The tick size for Ambuja Cement's index future contract is Rs. 0.10.
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How are futures contracts settled?
How are futures contracts settled?
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In a long future position, an investor earns profits when the underlying share price goes _____
In a long future position, an investor earns profits when the underlying share price goes _____
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Which of the following statements about futures contracts is TRUE?
Which of the following statements about futures contracts is TRUE?
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The last trading day for an index future contract is the last Thursday of the expiration month.
The last trading day for an index future contract is the last Thursday of the expiration month.
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What does a pay-off profile represent in the context of futures contracts?
What does a pay-off profile represent in the context of futures contracts?
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Study Notes
Financial Derivatives Course
- Course Title: Financial Derivatives
- Credit: 2
- Duration: 30 hours (includes practical)
- Eligibility: Anyone with a basic interest in the stock market and derivatives
- Course Objective: To orient students with basic capital market and investment management knowledge, understand derivatives and their types, understand forward, future and option concepts, and explain emerging derivative market structures in India. To compute call and put option payoffs.
- Course Outcome: Students will understand the concept of financial future contracts, describe the calculation of call and put option payoffs, and understand emerging derivative market structures in India.
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Course Content: Covers different units, including:
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Unit 1: Introduction
- Introduction to Derivatives
- History of Indian Derivatives market
- Factors influencing the growth of Derivatives market
- Types of Derivatives
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Unit 2: Forward Contract
- Meaning of Forward Contract
- Features of Forward Contract
- Advantages of Forward Contract
- Limitations of Forward Contract
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Unit 3: Forward and Future contract
- Meaning of Future Contract
- Differences between Forward and Future Contract
- Contract details for index and stock futures
- Pay offs for Future Contract
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Unit 4: Option contract
- Meaning of Option Contract
- European & American option
- Open interest in relation to price and volume
- Contract details for index and stock option
- In the money, at the money, out of the money, intrinsic value
- Factors determining Option Price
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Unit 1: Introduction
Reference Books
- S. Kevin, Security Analysis and Portfolio Management, PHI
- E. Gordon K. Natarajan, Capital Market In India, Himalaya
- V. A. Avadhani, Investment Management
- V. K. Bhalla, Security Analysis and Portfolio Management, S. Chand
- Vohra & Bagri, Futures and Options, Tata McGraw hill Latest Edition
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Description
Test your knowledge of financial derivatives, their types, and concepts like forwards, futures, and options. This quiz covers key aspects of the derivative market structure in India, ensuring you grasp both theoretical and practical insights. Perfect for anyone looking to refine their investment management skills.
