5. Derivatives and Risk Management

Derivative Instruments — Quiz

Test your understanding of derivative instruments with 5 practice questions.

Practice Questions

Question 1

Which of the following derivative contracts requires an initial margin deposit and is subject to daily marking-to-market?

Question 2

An investor sells a call option with a strike price of $K$ and receives a premium of $P$. If the underlying asset's price at expiration is $S_T$, what is the profit or loss for the option seller when $S_T > K$?

Question 3

What is the primary characteristic that distinguishes a swap contract from a forward contract?

Question 4

A long position in a put option gives the holder the right to sell an underlying asset. What is the maximum potential loss for the buyer of a put option?

Question 5

An investor enters into a short forward contract to sell 500 units of a commodity at $F_0 = 120$ per unit in six months. If the spot price of the commodity at expiration is $S_T = 125$ per unit, what is the profit or loss for the investor?