BFM- MCQ ON DERIVATIVE PRODUCTS

1) Under the Treasury operations the derivatives are  used:
a) To manage Risk as including ALM  Risk.
b) To meet the requirements of corporate  customers.
c) For taking trading position in  derivative products
d) All the above


2) The kinds of Derivatives are:
a) Cross currency derivatives
b) Rupee derivatives
c) (a) and (b) both
d) All these


3) The features of a Derivative  are:
a) It does not have independent  value.
b) The value of a Derivative is derived from an underlying   market_
c) Derivatives are used in both the financial and commodity markets
d) All the   above


4) Financial market consists of:
a) Foreign Exchange
b) Debt Instruments
c) Equities
d) All the above


5) Which of the followings are not  derivatives?
a) Forward Contract
b) Corporate Bonds
c) Swaps
d) Options

6) Forward contracts are used by:
a) Exporters
b) Importers
c) Banks
d) All of these


7) Derivative is an instrument where:
a) Value is derived from spot prices in an underlying   market.
b) Price depends upon future market  conditions
c) (a) and (b) both
d) None of these


8) A derivative product can be structured based on the following   criteria:
a) Risk Appetite
b) Size of Transactions
c) Maturity Requirements
d) All of these


9) What is an over the counter  product?
a) An instrument which can be directly negotiated and obtained from Banks and investment institutions.
b) An instrument which is settled over the  counter.
c) (a) and (b) both
d) None of these


10) Which of the followings are over the counter  product?
a) Forwards
b) Currency and interest rate options
c) Swaps
d) All of these


11) Which of the followings are Exchange Traded  Products?
a) Currency
b) Stock/Index options
c) Futures
d) All of these


12) The features of over the counter product  are:
a) Contracts of any size and maturity can be   structured.
b) The product has counterparty  risk.
c) Banks are the major players in the  OTC market.
d) All of these


13) Which of the following is not a feature of OTC   product?
a) Cost of option is to be paid up   front.
b) Cost is not loaded in the agreed  rates.
c) Market is not liquid.
d) Cancellation of contract may become  expensive.


14) The features of Exchange traded product  are:
a) The contract is of standard  size
b) Delivery dates are fixed
c) Price fluctuates according to market.
d) All of these


15) The Exchange Traded products have the following features:
a) There is no counterparty  Risk.
b) Only members of Exchange can  Trade.
c) Minimum margin is maintained
d) All of these


16) Which of the following is not correct regarding Exchange Traded  products?
a) Positions are marked to market  daily
b) Market is illiquid
c) The prices are determined by the  market.
d) All Trades are exchange  protected.


17) Which of the followings is not  correct?
a) Banks mostly use OTC  products
b) Volume of Trade in OTC products is much   lesser
c) Options and futures are Exchange Traded Products
d) All these


18) The contract of an option  is:
a) Where the Buyer of an option has a right but no obligations to exercise a contract.
b) The price fixed in advance is called strike   price
c) Specified time is known expiry date
d) All of these


19) The features of an option  are:
a) The option can either be a put option or   call-option
b) Call option gives a right to the Holder to buy on underlying product at a pre fixed rate and time.
c) Put option gives a right to the holder to sell the Asset at a specified rate and date.
d) All the above


20) Which of the followings is correct regarding option   contract?
a) An option which can be exercised any time before the expiry date is known as American option
b) An option which can be exercised only on expiry of date is called European option.
c) (a) and (b) both
d) None of these


21) Suppose a Dollar put option on JPY for USD 1 million with strike price at 105 and expires after 3 months: What is the course available to Holder?
a) The Holder has right to sell USD at the rate of 105 JPY per dollar on expiry date.
b) On expiry date if market rate is 108, the option holder will not exercise the put option.
c) If the market rate is below 105, the option Buyer will exercise the option on expiry date.
d) All the above


22) Which of the followings is  correct?
a) If strike price is same as the spot price of the currency the option is known at the money.
b) If strike price is less than the forward rate in a call option, it is called in the money.
c) If strike price is more than forward Rate in case of a put option, the option is called   out of the money
d) All these


23) What is intrinsic value?
a) The difference between the strike price and current forward rate of the currency is known as intrinsic value.
b) At the money and out of    the money contracts do not have intrinsic value
c) The option price less than the intrinsic value is the time value of    option
d) The Time value is maximum for an At the money   option.


24) Which of the followings is  correct?
a) As the Buyer of the option has the right but no obligation to exercise option at the strike price, he has more profit opportunities.
b) The seller of the option is obliged to Buy/Sell to the Holder of option at the strike price, he may incur unlimited loss.
c) (a) and (b) both
d) None of these


25) The feature of an option are:
a) The option is based on an amount which    is only notional. .
b) When Holder exercises the option, the Seller of option -pays only the difference between the strike price and market price.
c) Payment of difference as per*(b) is known as  cash settlement.
d) All these


26) What is option premium?
a) It is the price of the option payable to the option seller    upfront.
b) The premium amount depends on market volatility expiry date and strike   price.
c) The longer the maturity, higher is the option   premium.
d) Option premium increases with the volatility of  market.


27) Suppose a put option for 1000 Reliance shares at Rs. 500 with expiry on 3151-Jufyr---- 2005. What a strike option holder will do?
a) If Reliance shares are trading below Rs. 500 on expiry date, the option holder can sell the shares at Rs. 500.
b) If the market price is above the strike price of Rs. 500, the option holder would prefer to sell in the market and hence would not exercise    the option
c) (a) and (b) of the above
d) None of these


28) The features of a stock index  are:
a) A put option provides protection to the Holder against a fall in the index.
b) A call option on the index protects a Buyer from rise in the index.
c) (a) and (b) both
d) None of these


29) Which of the following statements is not  correct?
a) in India we have European type of   option.
b) Options do not cover hedge against price   fluctuations.
c) A person who sells USD put option to the exporter and a USD call option to the importer would be mitigating mutual Risk.
d) Option is like a insurance against adverse movement of   prices.


30) The features of a forward contract  are:
a) Settlement of a contract on maturity is  essential.
b) Holder of a forward contract can not benefit if market rate is better on day of settlement
c) There is no price for a forward contract — interest differentials of two currencies is loaded into the forward rate.
d) All these


31) What is an embedded  option?
a) When a call option gives issuer the right to repay the debt before specified date.
b) A convertible option may give bond holder option of converting debt into equity on specified terms.
c) (a) and (b) both
d) None of these


32) The features of futures contract  are:
a) It is a forward contract where Seller agrees to deliver to the Buyer a specified security on a specified date.
b) Futures contracts are of standard size with pre-fixed settlement   date.
c) The contracts are traded in a futures exchange
d) All these


33) Which of the followings are financial  futures?
a) Currency futures
b) Interest Rate Futures
c) Stock/Index futures
d) All of these


34) In which of the following currencies futures are traded in terms of US Dollar?
a) Euro
b) GBP and Japanese  Yen
c) An Australian and Canadian Dollar
d) All of these


35) Suppose there is a contract of GBP 25000 traded at the Exchange for delivery   on
30th  June at 1.8650 as against spot exchange rate of 1.80. What does this contract   imply?
a) The contract implies that seller would deliver to the holder of contract, GBP 25000 against payment of equivalent USD at 1.8650.
b) On the settlement date, if market rate of GBP is more than 1.8650, the seller will pay to the holder the difference in contracted price and spot price.
c) If the market price is less than the contracted price, the Buyer of the contract will bear the loss.
d) All these


36) Which of the followings is essential in a futures   contract?
a) The contract must be executed by both the  parties.
b) The Trading is done through the members of the   Exchange.
c) The Exchange is the counterparty for each transaction
d) All of these


37) Which of the followings is a distinct feature of a futures   contract?
a) The contract are marked to market  daily.
b) The members are required to pay margin equivalent to daily   loss.
c) In case of default by any member the Exchange will meet the payment    obligation.
d) All the above


38) Which of the following statements is  correct?
a) Futures are issued by Banks in Foreign Exchange   Business.
b) Exporters and Importers prefer forward contracts as they can cover risk in terms of size and duration.
c) Futures are traded by traders and speculators with large volumes.
d) All these


39) What are the Interest Rate  Futures?
a) -These are the contracts written on fixed Income securities of a    specified size.
b) The interest rates can be of a short term, medium term and long   term
c) They are used to hedge interest rate risk
d) All these


40) Which of the followings are relevant to interest   futures?
a) T. Bill futures are traded with US Treasury Bills and   notes.
b) Euro Dollar bonds are traded on the basis of LIBOR or Inter-Bank deposit Rate.
c) The contract size, delivery terms and Trading practices differ from Exchange to Exchange.
d) All the above


41) The Hedging of interest rates Risk depends  on:
a) It is based on inverse relationship between interest rates and bond   prices.
b) If the interest rate goes up the bond price comes   down.
c) Bond price would move up if interest rates decline.
d)    All these


42) What is an interest rate  swap?
a) It is a  process where interest flows on an underlying assets or liability    are -  exchanged
b) The value is the notional amount of  swap.
c) The interest is changed according to requirement of a lender or borrower
d) All these


43) Interest rate swap are shifted as  under:
a) Floating rate to fixed rate
b) Fixed rate to floating rate
c) Floating rate to floating rate
d) Any of these


44) Flow the interest rates are  calculated?
a) Interest rates are calculated on notional amount which is equal to face value of debt instrument.
b) The notional amount is not  exchanged.
c) The actual payment of interest is netted out on interest  payment date
d) All these


45) What are the features of Benchmark  rate?
a) it is a Risk free interest rate determined by the   market.
b) It is objective and transparent.
c) The issuer of debt paper and the lending bank link interest rate to a benchmark rate
d) All the above


46) The following is the Benchmark  Rate:
a) For US dollars, it is  LIBOR
b) For Indian Rupee Market, it is  MIBOR
c) MIFOR for foreign currency Borrowings swapped in  to Rupee
d) All these


47) Which of the followings is  correct?
a) LIBOR is a rate charged by US federal Reserve for lending to banks.
b) MIBOR is announced by-N-SE.
c) MIFOR is announced by Reuters
d) All these


48) What is significant about MIBOR?
a) It is one day money market rate in the Inter-Bank market being announced by NSE daily ate 9.50 a.m.
b) NSE Pool the rate from various participating Banks and averages out after extreme top and bottom rates.
c) It is a base rate for short term and medium term  lending also.
d) All these


49) What is a floating to floating rate  swap?
a) It involves change of benchmark  rate.
b) If a corporate has opted for T-Bill linked rate and later prefers to have MIBOR, it can enter a swap and receive—T-Bill rate and pay MIBOR linked equivalent rate
c) (a) and (b) both
d) None of these


50) Which of the following statements is  correct?
a) Under the Quanta swaps, payment of interest in home currency at rates applicable to foreign
currency are allowed.
b) In the coupon swaps floating rates in one currency are exchanged to fixed rate of another currency.
c) Swaptions are swaps which collapse at a knock out level of market rates and swaps with built in options
d) All these


51) What is IRS (Interest Rate  Swaps)?
a) It is an OTC instrument generally issued by a   Bank.
b) This facilitates conversion-of floating rate into fixed and   vice-versa.
c) IRS is also used in Treasury operations to fill the Asset-Liability   mismatch
d) All the above


52) The feature of currency swap  are:
a) It is a process of exchanging cash flows in one currency with that of another currency.
b) The cash flows may be in connection with repayment of principal or interest of a loan.
c) It can be either principal only or interest  only swap.
d) All these


53) The process of currency swap  is:
a) The currency swap arises when loan raised in one currency is actually required to be used in another currency.
b) The different corporates can raise the loan relatively at a lower rate in their home currency and both can exchange the proceeds
c) On due date, payment will be made  by each-other
d) All these


54) Suppose 'A' company raises a  loan of USD 100 million for 5  years at 4% p.a.    (interest payment — semi-annual) with bullet payment and swaps the loan into rupee with the Banker 'B'. Thus 'A' pays 'B' USD 100 million and receive Rs. 450 crore from 'B'. What would be the further  process?
a) B will service the interest on USD loan pays interest at 4% to A who pays interest to the lending Bank.
b) A pays interest on rupee loan half yearly to B at swap rate of 6.5%
c) On maturity date A and B exchanges principal amount and reverse :..he   exchange.
d) All the above


55) The kinds of currency swaps  are:
a) Principal only swap
b) Interest only swap
c) Principal plus interest swap
d) Any of these


56) What is ISDA master agreement?
a) Ms a standardized agreement formulated by international swap and derivatives association.
b) The agreement has been approved by  FEDAI.
c) Master agreement coves all the transactions between two counterparties   globally
d) All of these


57) Which of the following terms of the contract are covered under ISDA master agreement?
a) Valuation norms
b) Netting out
c) Cross default
d) All these


58) What are the RBI guidelines for the development of interest rate swaps    (IRS)
a) Banks can use IRS for hedging and Trading   both
b) MIFOR is a benchmark for  IRS
c) Under ISDA agreement Banks can opt for dual jurisdiction i.e. Indian as well as common law
d) All the above


59) The features of MIFOR  are:
a) It combines LIBOR and forward  premium
b) It is based on active forex market  dealings
c) It is linked to domestic and global markets
d) All these


60) Which of the following statements is  correct?
a) Exporters and importers can use forward contracts for the trade   transactions
b) Contracts can be booked on declaration  basis
c) Options and forwards booked to hedge loans, once cancelled can not    be rebooked
d) All the above


61) Which of the following is  correct?
a) Margin is like a security for credit  Risk_
b) Plain vanilla swaps are currency and interest rate swaps with basic structure without inbuilt options
c) Managing market Risk inherent in the Assets and Liabilities of a Bank is called Balance Sheet Management
d) All these

ANSWER SHEET-

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11	D	12	D	13	B	14	D	15	D	16	B	17	B	18	D	19	D	20	C
21	D	22	D	23	A	24	C	25	D	26	A	27	C	28	C	29	B	30	D
31	C	32	D	33	D	34	D	35	D	36	D	37	D	38	D	39	A	40	D
41	D	42	A	43	D	44	A	45	D	46	D	47	D	48	D	49	C	50	D
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