Equity and Derivative - Beginners Module - Chapter 2 - Quiz 2
Question 1: What is the payoff in an options contract?
Option 1: The difference between the strike price and the market price
Option 2: The profit or loss resulting from exercising the option
Option 3: The interest earned on the option
Option 4: The premium paid for the option
Answer: Option 2: The profit or loss resulting from exercising the option
ReferenceQuestion 2: What is an expiration date in an options contract?
Option 1: The date on which the option contract becomes void
Option 2: The date on which the underlying asset's price is determined
Option 3: The date when the option premium is paid
Option 4: The date when the option can first be exercised
Answer: Option 1: The date on which the option contract becomes void
ReferenceQuestion 3: What is a European option?
Option 1: An option that can be exercised at any time before expiration
Option 2: An option that can only be exercised on the expiration date
Option 3: An option traded in European markets
Option 4: An option issued by European companies
Answer: Option 2: An option that can only be exercised on the expiration date
ReferenceQuestion 4: What is an 'out of the money' option?
Option 1: An option that has intrinsic value
Option 2: An option with no intrinsic value
Option 3: An option that cannot be exercised
Option 4: An option that is not yet expired
Answer: Option 2: An option with no intrinsic value
ReferenceQuestion 5: What is the underlying asset in a derivative contract?
Option 1: The asset on which the derivative's value is based
Option 2: The derivative itself
Option 3: A secondary financial instrument
Option 4: A government bond
Answer: Option 1: The asset on which the derivative's value is based
ReferenceQuestion 6: What is a futures contract?
Option 1: A contract to buy or sell an asset at a future date at a predetermined price
Option 2: An insurance policy for investments
Option 3: A type of bond
Option 4: A savings plan with a bank
Answer: Option 1: A contract to buy or sell an asset at a future date at a predetermined price
ReferenceQuestion 7: What happens to an option's time value as it approaches expiration?
Option 1: It increases
Option 2: It remains constant
Option 3: It decreases
Option 4: It becomes zero
Answer: Option 3: It decreases
ReferenceQuestion 8: In what type of market are futures contracts traded?
Option 1: Stock exchanges
Option 2: Over the Counter (OTC) market
Option 3: Retail market
Option 4: Auction market
Answer: Option 1: Stock exchanges
ReferenceQuestion 9: What is the time value of an option?
Option 1: The remaining time until the option's expiration
Option 2: The intrinsic value of the option
Option 3: The premium paid for the option
Option 4: The difference between the option premium and intrinsic value
Answer: Option 4: The difference between the option premium and intrinsic value
ReferenceQuestion 10: What is the primary use of derivatives?
Option 1: To invest in real estate
Option 2: To hedge risk or speculate on the price movement of the underlying asset
Option 3: To open a savings account
Option 4: To create a pension fund
Answer: Option 2: To hedge risk or speculate on the price movement of the underlying asset
ReferenceQuestion 11: What is an 'in the money' option?
Option 1: An option that has intrinsic value
Option 2: An option with no intrinsic value
Option 3: An option that cannot be exercised
Option 4: An option that is not yet expired
Answer: Option 1: An option that has intrinsic value
ReferenceQuestion 12: What is the strike price in an options contract?
Option 1: The market price of the underlying asset
Option 2: The price at which the option can be exercised
Option 3: The premium paid for the option
Option 4: The interest rate on a loan
Answer: Option 2: The price at which the option can be exercised
ReferenceQuestion 13: What is the intrinsic value of an option?
Option 1: The difference between the exercise price and the current market price of the underlying asset
Option 2: The total cost of the options contract
Option 3: The premium paid for the option
Option 4: The interest rate on a loan
Answer: Option 1: The difference between the exercise price and the current market price of the underlying asset
ReferenceQuestion 14: What is a derivative?
Option 1: A financial instrument whose value depends on the value of another asset
Option 2: A type of stock
Option 3: A bond issued by a corporation
Option 4: A savings account with a bank
Answer: Option 1: A financial instrument whose value depends on the value of another asset
ReferenceQuestion 15: What is an option premium?
Option 1: The fee paid by the option buyer to the option seller
Option 2: The market price of the underlying asset
Option 3: The interest rate on a loan
Option 4: The commission paid to a broker
Answer: Option 1: The fee paid by the option buyer to the option seller
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