Reading 68: Derivative Markets and Instruments-LOS a 习题精选 2011, following, regarding, between, border

1215

Session 17: Derivatives
Reading 68: Derivative Markets and Instruments

LOS a: Define a derivative and differentiate between exchange-traded and over-the-counter derivatives.

 

 

Which of the following is most accurate regarding derivatives?

A) Derivative values are based on the value of another security, index, or rate.

B) Exchange-traded derivatives are created and traded by dealers in a market with no central location.

C) Derivatives have no default risk.

---

 

Derivatives “derive” their value from the value or return of another asset or security. Exchange-traded derivatives are standardized and backed by a clearinghouse. An over-the-counter derivative, such as a forward contract or a swap, exposes the derivative holder to the risk that the counterparty may default.

luqian55

thanks a lot

1215

A derivative security:

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

B) is like a callable bond.

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

---

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

1215

Which of the following statements regarding exchange-traded derivatives is NOT correct? Exchange-traded derivatives:

A) often trade in a physical location.

B) are illiquid.

C) are standardized contracts.

---

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

1215

Which of the following is most likely an exchange-traded derivative?

A) Equity index futures contract.

B) Bond option.

C) Currency forward contract.

---

Futures are exchange-traded derivatives. Forward contracts and swaps are over-the-counter derivatives. Bond options are traded almost entirely in the over-the-counter market.

1215

A derivative security:

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

B) has no default risk.

C) has a value based on stock prices.

---

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

1215

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

A) derivative security.

B) option.

C) future.

---

Options and futures are examples of types of derivative securities.

1215

Over-the- counter derivatives:

A) are customized contracts.

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

C) are backed by the OTC Clearinghouse.

---

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.

1215

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

A) A forward contract.

B) A bond option.

C) A futures contract.

---

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

1215

Which of the following definitions involving derivatives is least accurate?

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

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

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

---

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