3. Financial Mathematics

Derivatives Basics — Quiz

Test your understanding of derivatives basics with 5 practice questions.

Practice Questions

Question 1

Which of the following describes a situation where an actuary would use a long position in a futures contract?

Question 2

An actuary is concerned about a potential increase in the price of a commodity that a company regularly uses in its production. To mitigate this risk, the actuary decides to use a derivative instrument. Which of the following would be the most appropriate derivative for this hedging strategy?

Question 3

What is the primary characteristic that differentiates over-the-counter (OTC) derivatives from exchange-traded derivatives?

Question 4

In an interest rate swap, if a financial institution pays a fixed interest rate and receives a floating interest rate, what is the effect on the institution if market interest rates generally rise?

Question 5

Which of the following best defines the strike price in an option contract?