Reading 70: Derivative Markets and Instruments - LOS a～ statements, following, regarding, style, black

cfaedu

1.Which of the following statements regarding exchange-traded derivatives is FALSE? Exchange-traded derivatives:

A)   are illiquid.

B)   are standardized contracts.

C)   have secondary markets.

D)   often trade in a physical location.

2.A derivative security:

A)   is one that is based on the value of another security.

B)   is like a callable bond.

C)   never has negative payoffs.

D)   has a value dependent on the shape of the yield curve.

3.A financial instrument that has payoffs based on the price of an underlying physical or financial asset is a(n):

A)   option.

B)   future.

C)   forward.

D)   derivative security.

4.A derivative security:

A)   has no default risk.

B)   has a value based on stock prices.

C)   has a value based on another security or index.

D)   is traded only in the over-the-counter market.

5.Which of the following definitions involving derivatives is FALSE?

A)   A call option gives the owner the right to sell the underlying good at a specific price for a specified time period.

B)   An option writer is the seller of an option.

C)   An arbitrage opportunity is the chance to make a riskless profit with no investment.

D)   A swap is an agreement between two or more parties to exchange sets of cash flows over a period in the future.

6.Which of the following is NOT an over-the-counter (OTC) derivative?

A)   A forward contract.

B)   A swap agreement.

C)   A bond option.

D)   A futures contract.

7.Over-the- counter derivatives:

A)   carry no default risk.

B)   have good liquidity in the over-the-counter (OTC) market.

C)   are backed by the OTC Clearinghouse.

D)   are customized contracts.

tomathome

thanks

cfaedu

答案和详解如下：

1.Which of the following statements regarding exchange-traded derivatives is FALSE? Exchange-traded derivatives:

A)   are illiquid.

B)   are standardized contracts.

C)   have secondary markets.

D)   often trade in a physical location.

The correct answer was A)

Derivatives that trade on exchanges have good liquidity in most cases. They have the other characteristics listed.

2.A derivative security:

A)   is one that is based on the value of another security.

B)   is like a callable bond.

C)   never has negative payoffs.

D)   has a value dependent on the shape of the yield curve.

The correct answer was A)

A derivative security is one that ‘derives’ its value from that of another security.

3.A financial instrument that has payoffs based on the price of an underlying physical or financial asset is a(n):

A)   option.

B)   future.

C)   forward.

D)   derivative security.

The correct answer was D)

Options, futures, and forwards are examples of types of derivative securities.

4.A derivative security:

A)   has no default risk.

B)   has a value based on stock prices.

C)   has a value based on another security or index.

D)   is traded only in the over-the-counter market.

The correct answer was C)

This is the definition of a derivative security. Those based on stock prices are equity derivatives.

5.Which of the following definitions involving derivatives is FALSE?

A)   A call option gives the owner the right to sell the underlying good at a specific price for a specified time period.

B)   An option writer is the seller of an option.

C)   An arbitrage opportunity is the chance to make a riskless profit with no investment.

D)   A swap is an agreement between two or more parties to exchange sets of cash flows over a period in the future.

The correct answer was A)

A call option gives the owner the right to buy the underlying good at a specific price for a specified time period.

6.Which of the following is NOT an over-the-counter (OTC) derivative?

A)   A forward contract.

B)   A swap agreement.

C)   A bond option.

D)   A futures contract.

The correct answer was D)

Futures contracts are exchange-traded; forwards, swaps, and most bond options are OTC derivatives.

7.Over-the- counter derivatives:

A)   carry no default risk.

B)   have good liquidity in the over-the-counter (OTC) market.

C)   are backed by the OTC Clearinghouse.

D)   are customized contracts.

The correct answer was D)

OTC derivative contracts (securities) are customized and have poor liquidity. The contract is with a specific counterparty and there is default risk since there is no clearinghouse to guarantee performance.