MULTIPLE CHOICE SINGLE CORRECT ITEM TEMPLATE

Input LanguageEnglish
Item Bank ID 35073 Course Name

Difficulty
Level No. of
(Low- Author Options Item Text
1,Medium- (4 Only)
2,High -3)

2 4 What is the cashflow for an In The money option

2 4 What is the maximum Loss for a Long Put

2 4 Where is the Breakeven point for a Long Call

Which one of the following is Not an exchange Traded
2 4
contract
Which one of the following will use a Long Hedge to
2 4
protect them selves
2 4 What is the cashflow for an Out of The money option

2 4 Spot price minus the futures price is knows as what

2 4 The maximum profit possible in a Short Put is what

What is the Future Price for a stock whose Pric
2 4 Rs.1000 Risk free rate is 8% p.a. and time to expiry is 2
months
2 4 Limited Loss and Unlimited profit is applicable to which one

3 4 Which Factor doesnot directly affect Option Prices

3 4 Which position of an Option give zero cashflow

Whats is the futures Price for a stock , price INR 100, Risk
3 4 Free rate is 7% p.a., Dividend Yield is 2% p.a., Time to
expiry is 1holding
A Hedger month an existing Short position will take what to
3 4
protect himseelf
Which of the following contract has liquidity risk- Low
3 4 Liquidity

3 4 Unlimited Loss and Limited Profit is applicable to which one

3 4 What is the Maximum Profit for a Long Put

Which of the followin does NOT have Daily Marked
3 4
to Market Settlement?
3 4 When Time to expity is longer what happens to option prices
What is the Futures PriceGBP Pound contract whose
3 4 Price is INR 100 Risk fre rate 6% p.A. International Risk
Free Rate 0.5% p.a and time to expiry is 3months
3 4 A combination of Long Futures and Long Put is what

3 4 Which Position will you NOT take in a Bearish Market

3 4 Which one of the following is False for options
A combination of Long Futures/Stocks and Short Call is
3 4
known as is the Futures Price for Dollar Spot price is INR
What
3 4 73 , Risk free rate is 6% p.A. International Risk Fre Rate
2% p.a andLoss
Unlimited timeand
to expiry is 3 Profit
Unlimited monthsis applicable to which
3 4
one
In which contract does Price converge with the underlying
3 4
spot price on expiry
Which F&O combination will a Speculator take in a Bearish
3 4 What is your profit on selling a Put where Strike price is
Market
INR 1000 Premium Received INR 40 and Spot Price is INR
3 4 1050

3 4 Which Position will you NOT take in a Bullish Market

Counterparty default Risk Exists for which of the
3 4
following
Which one of the following has compulsory Margin
3 4 You bought a Put Option. Strike Price K=INR 100 Premium
requirement
Paid is INR.5. What is the net payoff if spot price falls to
3 4 INR 80
Combination of a Long Call at a lower Strike Price plus a
3 4
Short Call at higher Strike Price is called what
3 4 Which one of the following is also known as a Synthetic Call

3 4 Who will capitalize on this discrepancy if Soe^rt<Fo

3 4 What is the Risk

You bought a CallReward
Option.Ratio in Price
Strike a BearK=INR
Put Spread
100 Premium
Paid is INR.5. What is your maximum loss if spot price falls
3 4 What
to INR 80 is the Futures Price for a Commodity whose Price
is INR 1000 Risk free rate 7% p.A. Storage cost is 2% p.a
3 4 and time to expiry is 3 months

3 4 A Protective Call-Future option combination is which one

3 4 Which Option combination Strategy will you take in a Volatile Market

3 4 Premium minus Intrinsic value is what for Options

A Mutual Fund holding a large portfolio of Bonds will take
3 4
which Hedge to protect the portfolio
3 4 Which one of the following is an Obligation to Sell
Whats is the effect of Dividends when paid out, on Call
3 4
option prices
3 4 Futures prices change along with the underlying spot price
A commodity Buyer will take which position to Hedge
3 4
himself
Based on Black Scholes what happens to the Call Option
3 4 premium value when Strike Price is Low

3 4 What happens to a Put option Premium when Spot Price rises

 Will You exercise a Long Call Option if Strike price is
3 4 INR 100 Premium Paid is INR 10 and Spot Price is INR 103
Item Image Option Text 1 Option Text 2 Option Text 3 Option Text 4 Correct Option

zero positive negative not applicable 2

Premium Paid Margin Paid Premium received Strike price 1

Premium K K-Premium paidK+ Premium paid 4

Futures Calls Puts Forwards 4

Exporter Importer Commodity Seller Equity Holder 2

negative not applicable zero positive 1

Lot size Spread Strike Basis 4

K- Premium K+ Premium Premium K 3

1010 1012 1014 1013.4 4

Futures Forwards Long Call Short Call 3

Volatility Time to Expiry Rate of Interest Forward Premia 4

OTM ITM ATM Time value 3

100 100.4 100.9 101 2

Long Hedge Short Hedge Short position Neutral position 1

Options Futures Forwards Calls & Puts 3

Short Call Long Call Long Put Futures 1

K+Premium
K-Premium paid K Spot price 2
paid
Currency Futures
Commodity Futures Equity Futures Long Call 4

Decreases Constant Increases Volatile 3

101.1 101.38 101 102.2 2

Protective Call Covered call Protective Put Covered Put 3

Short Futures Short Put Long Put Short Call 2

 Strike price Strike price Premium Non Linear
1
Change constant Change payoff
Protective Call Long Call Covered call Short Call 3

73.73 74.74 72.72 75.75 1

Short Put Short Call Long Put Futures 4

Long Call Long Put Futures Short Put 3

Short Futures- Short Futures- Short Futures-
None 1
Long Put Long Call Short Put
INR 1000 INR 40 INR 960 INR 50 2

Long Call Short Put Long Futures Long Put 4

Futures Forwards Call Option Put options 2

Long Call Long Put Short Call European option 3

20 25 5 15 4

Bear Spread Bull Spread Straddle Strangle 2

Bull Spread Bear Spread Protective Call Protective Put 4

Speculator Hedger Arbitrageur Scalper 3

Unlimited Risk
Unlimited Unlimited Risk Limited Risk
unlimited 4
Reward Limited Reward Limited reward
Reward
20 5 0 15 2

1021 1020 1019.6 1022.7 4

Short Future- Short Future- Short Future- Short Future-
Short Call Short Put Long Call Long Put 3
n a Volatile Market Long Straddle Short Straddle Short Strangle Bull Spread 1
Expiry Value Time Value Strike value Premium Value 2
Long Hedge Neutral Hedge Short Hedge Natural Hedge 3
Long Put Short Put Long Call Short Call 4
Prices stay
Prices decrease Prices increase All 2
same
Strike price
True 0 No correlation 1
changes
Static Hedge Long Hedge Neutral Hedge Short Hedge 2
Higher Lower No change both possible 1

Rises Falls Volatile Neutral 2

Yes No Expire Worthless No action 1
 CO
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Input Language English
Item Bank ID 35073 SIMS_MBA Batch

Difficulty Level (Low- Questions : (2 Time)

Author
1,Medium-2,High -3) (Attemp Any Two for 12 Marks)

Explain the 3 Main Types of Traders In Derivative

markets and their outlook

What are Futures Contracts. Explain 4 major Features of

Futures Contracts

Explain a Put option. What is a Long Put and a Short Put

Option

What are the major differences between Futures

contracts and Option Contracts

Based on Black Scholes how does the following factors

affect Call and Put Option Premiums- Change in
Volatility, Time to Expiry, Increase or decrease in Spot
Price
3

In Futures terminology please explain the following-

Spot Price, Contract cycle, Lot Size and Daily EOD
Marking to Market
3
 Model Answer

Speculators- Maximise Profits, High Risk High Returns | Hedgers- Minimise Losses, Low Risk Low Returns | Arb
Capitalise on discrepancies, risk free profit

A futures contract is an agreement between two parties to buy or sell an underlying asset at a certain time in the fu
price and a pre decided fixed quantity. Futures contracts are organised/ standardised contracts, which are traded on
highly liquid in nature,clearing corporation/ house provides the settlement guarantee.

A put option gives the holder the right but not the obligation to sell an underlying asset by a certain date for a ce
Long Put- Trader’s rights- Sell underlying at strike price. Trader’s obligations- Nil. Premium paid or received - P
requirements - No. | Short Put- Trader’s rights- Nil, Trader’s obligations- Buy underlying at strike price.
Premium paid or received - Received. Margin requirements - Yes. Risk profile - Unlimited*, if prices go down.

Futures- Linear payoff, Futures prices move with spot, Margins for Long and Short, Daily MTM | Options- Non L
price constant, Premium Moves with spot, Margins for Short, No daily MTM

Premiums rise with increased volatility & Vive Versa, Time value of option Premium decreases as time to expiry
Higher spot price Call premium increases, Put falls and vice versa

Spot price: The price at which an asset trades in the spot market, Contract cycle: The period over which a contra
month, mid month, far month, Contract size: Lot Size, Marking-to-market: EOD settlement of the margin accoun
investor gain/loss
Questions CO
Q.NO.
Marks (1,2,3,4,5)

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