Here are 50 MCQs on Financial Derivatives – Options, Forwards, Futures, Hedging, Speculation, Arbitrage aligned with US CMA Part 2 (Corporate Finance) syllabus.
SOLVE FIRST THEN CHECK ✔️ YOURSELF ANSWERS ARE AT THE END.
✅ Financial Derivatives – 50 MCQs
1. A derivative derives its value from:
A. Interest rate
B. Underlying asset
C. Inflation rate
D. Government policy
Answer:
2. The underlying asset of an option can be:
A. Stock
B. Bond
C. Commodity
D. All of the above
Answer:
3. A call option gives the holder the right to:
A. Sell an asset
B. Buy an asset
C. Borrow money
D. Lend money
Answer:
4. A put option gives the holder the right to:
A. Buy an asset
B. Sell an asset
C. Issue shares
D. Borrow funds
Answer:
5. The strike price is:
A. Market price
B. Exercise price
C. Premium paid
D. Futures price
Answer:
6. The premium of an option is:
A. Refundable deposit
B. Price paid for the option
C. Strike price
D. Dividend
Answer:
7. Option writer is:
A. Buyer of option
B. Seller of option
C. Broker
D. Arbitrageur
Answer:
8. Option owner has:
A. Obligation
B. Right but not obligation
C. Obligation to buy
D. Obligation to sell
Answer:
9. A call option is “in the money” when:
A. Market price < Strike price
B. Market price = Strike price
C. Market price > Strike price
D. Premium > Strike price
Answer:
10. A put option is “in the money” when:
A. Market price > Strike price
B. Market price < Strike price
C. Market price = Premium
D. Premium > Strike price
Answer:
11. At-the-money option means:
A. Market price = Strike price
B. Market price > Strike price
C. Premium = 0
D. Expired option
Answer:
12. Out-of-the-money call option occurs when:
A. Market > Strike
B. Market < Strike
C. Market = Strike
D. Premium high
Answer:
13. Maximum loss for call buyer is:
A. Unlimited
B. Strike price
C. Premium paid
D. Market price
Answer:
14. Maximum gain for call buyer is:
A. Limited
B. Unlimited
C. Zero
D. Premium
Answer:
15. Maximum gain for call writer is:
A. Unlimited
B. Strike price
C. Premium received
D. Market price
Answer:
16. A forward contract is:
A. Standardized
B. Exchange traded
C. OTC customized contract
D. Daily settled
Answer:
17. Futures contracts are:
A. OTC
B. Customized
C. Standardized and exchange traded
D. Illegal
Answer:
18. Futures are marked to market:
A. At maturity
B. Weekly
C. Daily
D. Never
Answer:
19. Counterparty risk is higher in:
A. Futures
B. Forwards
C. Options
D. Swaps on exchange
Answer:
20. Hedging primarily aims to:
A. Maximize profit
B. Reduce risk
C. Speculate
D. Arbitrage
Answer:
21. Speculation involves:
A. Risk reduction
B. Locking price
C. Taking risk for profit
D. Arbitrage-free pricing
Answer:
22. Arbitrage is:
A. Hedging risk
B. Buying and selling for risk-free profit
C. Gambling
D. Paying premium
Answer:
23. A protective put strategy involves:
A. Buying stock and selling put
B. Buying stock and buying put
C. Selling stock and buying call
D. Selling call only
Answer:
24. Covered call involves:
A. Selling call and owning stock
B. Buying call only
C. Buying put only
D. Selling stock
Answer:
25. Break-even for call buyer equals:
A. Strike – Premium
B. Strike + Premium
C. Market price
D. Premium only
Answer:
26. Break-even for put buyer equals:
A. Strike + Premium
B. Strike – Premium
C. Premium
D. Market price
Answer:
27. Intrinsic value of call option:
A. Max(0, Market – Strike)
B. Max(0, Strike – Market)
C. Premium
D. Zero
Answer:
28. Intrinsic value of put:
A. Market – Strike
B. Strike – Market
C. Premium
D. Market price
Answer:
29. Time value of option equals:
A. Premium – Intrinsic value
B. Strike – Premium
C. Market price
D. Zero
Answer:
30. If stock = $120, strike = $100, call intrinsic value:
A. 0
B. 20
C. 100
D. 120
Answer:
31. If stock = $80, strike = $100, put intrinsic value:
A. 20
B. 0
C. 100
D. 80
Answer:
32. Long hedge means:
A. Sell futures
B. Buy futures
C. Sell spot
D. Buy put
Answer:
33. Short hedge means:
A. Buy futures
B. Sell futures
C. Buy call
D. Buy stock
Answer:
34. A company expecting to purchase raw material should:
A. Short futures
B. Long futures
C. Sell call
D. Arbitrage
Answer:
35. A company expecting to sell inventory should:
A. Long futures
B. Short futures
C. Buy call
D. Buy stock
Answer:
36. Option buyer’s loss is:
A. Unlimited
B. Limited
C. Zero
D. Strike price
Answer:
37. Futures contract obligates parties to:
A. Right only
B. Option to buy
C. Buy/sell at future date
D. Pay premium only
Answer:
38. Margin requirement applies in:
A. Forwards
B. Futures
C. Private contracts
D. OTC swaps
Answer:
39. American option can be exercised:
A. Only at expiry
B. Anytime before expiry
C. After expiry
D. Never
Answer:
40. European option exercised:
A. Anytime
B. Only at maturity
C. Before maturity
D. Daily
Answer:
41. If premium = $5, strike = $100, break-even call:
A. 95
B. 100
C. 105
D. 5
Answer:
42. If stock price falls drastically, call buyer:
A. Gains unlimited
B. Loses only premium
C. Gains premium
D. Break-even
Answer:
43. Arbitrage opportunity exists when:
A. Same asset priced differently in two markets
B. Premium is high
C. Strike equals market
D. Futures exist
Answer:
44. Futures price converges to spot price:
A. At inception
B. At expiration
C. Randomly
D. Never
Answer:
45. Call option is valuable when:
A. Price expected to fall
B. Price expected to rise
C. Stable price
D. Interest falls
Answer:
46. Put option is valuable when:
A. Price expected to rise
B. Price expected to fall
C. Price stable
D. Dividend paid
Answer:
47. Speculator expecting price increase should:
A. Buy put
B. Sell call
C. Buy call
D. Short futures
Answer:
48. Maximum loss for put writer:
A. Unlimited
B. Strike price – Premium
C. Premium
D. Zero
Answer:
49. Derivatives are primarily used for:
A. Tax avoidance
B. Risk management
C. Dividend declaration
D. Accounting entries
Answer:
50. Basis risk arises when:
A. Hedge imperfectly offsets exposure
B. No premium paid
C. Option expires
D. Futures standardized
Answer:
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Answers:
✅ Financial Derivatives – 50 MCQs (with Answers)
1. A derivative derives its value from:
A. Interest rate
B. Underlying asset
C. Inflation rate
D. Government policy
Answer: B
2. The underlying asset of an option can be:
A. Stock
B. Bond
C. Commodity
D. All of the above
Answer: D
3. A call option gives the holder the right to:
A. Sell an asset
B. Buy an asset
C. Borrow money
D. Lend money
Answer: B
4. A put option gives the holder the right to:
A. Buy an asset
B. Sell an asset
C. Issue shares
D. Borrow funds
Answer: B
5. The strike price is:
A. Market price
B. Exercise price
C. Premium paid
D. Futures price
Answer: B
6. The premium of an option is:
A. Refundable deposit
B. Price paid for the option
C. Strike price
D. Dividend
Answer: B
7. Option writer is:
A. Buyer of option
B. Seller of option
C. Broker
D. Arbitrageur
Answer: B
8. Option owner has:
A. Obligation
B. Right but not obligation
C. Obligation to buy
D. Obligation to sell
Answer: B
9. A call option is “in the money” when:
A. Market price < Strike price
B. Market price = Strike price
C. Market price > Strike price
D. Premium > Strike price
Answer: C
10. A put option is “in the money” when:
A. Market price > Strike price
B. Market price < Strike price
C. Market price = Premium
D. Premium > Strike price
Answer: B
11. At-the-money option means:
A. Market price = Strike price
B. Market price > Strike price
C. Premium = 0
D. Expired option
Answer: A
12. Out-of-the-money call option occurs when:
A. Market > Strike
B. Market < Strike
C. Market = Strike
D. Premium high
Answer: B
13. Maximum loss for call buyer is:
A. Unlimited
B. Strike price
C. Premium paid
D. Market price
Answer: C
14. Maximum gain for call buyer is:
A. Limited
B. Unlimited
C. Zero
D. Premium
Answer: B
15. Maximum gain for call writer is:
A. Unlimited
B. Strike price
C. Premium received
D. Market price
Answer: C
16. A forward contract is:
A. Standardized
B. Exchange traded
C. OTC customized contract
D. Daily settled
Answer: C
17. Futures contracts are:
A. OTC
B. Customized
C. Standardized and exchange traded
D. Illegal
Answer: C
18. Futures are marked to market:
A. At maturity
B. Weekly
C. Daily
D. Never
Answer: C
19. Counterparty risk is higher in:
A. Futures
B. Forwards
C. Options
D. Swaps on exchange
Answer: B
20. Hedging primarily aims to:
A. Maximize profit
B. Reduce risk
C. Speculate
D. Arbitrage
Answer: B
21. Speculation involves:
A. Risk reduction
B. Locking price
C. Taking risk for profit
D. Arbitrage-free pricing
Answer: C
22. Arbitrage is:
A. Hedging risk
B. Buying and selling for risk-free profit
C. Gambling
D. Paying premium
Answer: B
23. A protective put strategy involves:
A. Buying stock and selling put
B. Buying stock and buying put
C. Selling stock and buying call
D. Selling call only
Answer: B
24. Covered call involves:
A. Selling call and owning stock
B. Buying call only
C. Buying put only
D. Selling stock
Answer: A
25. Break-even for call buyer equals:
A. Strike – Premium
B. Strike + Premium
C. Market price
D. Premium only
Answer: B
26. Break-even for put buyer equals:
A. Strike + Premium
B. Strike – Premium
C. Premium
D. Market price
Answer: B
27. Intrinsic value of call option:
A. Max(0, Market – Strike)
B. Max(0, Strike – Market)
C. Premium
D. Zero
Answer: A
28. Intrinsic value of put:
A. Market – Strike
B. Strike – Market
C. Premium
D. Market price
Answer: B
29. Time value of option equals:
A. Premium – Intrinsic value
B. Strike – Premium
C. Market price
D. Zero
Answer: A
30. If stock = $120, strike = $100, call intrinsic value:
A. 0
B. 20
C. 100
D. 120
Answer: B
31. If stock = $80, strike = $100, put intrinsic value:
A. 20
B. 0
C. 100
D. 80
Answer: A
32. Long hedge means:
A. Sell futures
B. Buy futures
C. Sell spot
D. Buy put
Answer: B
33. Short hedge means:
A. Buy futures
B. Sell futures
C. Buy call
D. Buy stock
Answer: B
34. A company expecting to purchase raw material should:
A. Short futures
B. Long futures
C. Sell call
D. Arbitrage
Answer: B
35. A company expecting to sell inventory should:
A. Long futures
B. Short futures
C. Buy call
D. Buy stock
Answer: B
36. Option buyer’s loss is:
A. Unlimited
B. Limited
C. Zero
D. Strike price
Answer: B
37. Futures contract obligates parties to:
A. Right only
B. Option to buy
C. Buy/sell at future date
D. Pay premium only
Answer: C
38. Margin requirement applies in:
A. Forwards
B. Futures
C. Private contracts
D. OTC swaps
Answer: B
39. American option can be exercised:
A. Only at expiry
B. Anytime before expiry
C. After expiry
D. Never
Answer: B
40. European option exercised:
A. Anytime
B. Only at maturity
C. Before maturity
D. Daily
Answer: B
41. If premium = $5, strike = $100, break-even call:
A. 95
B. 100
C. 105
D. 5
Answer: C
42. If stock price falls drastically, call buyer:
A. Gains unlimited
B. Loses only premium
C. Gains premium
D. Break-even
Answer: B
43. Arbitrage opportunity exists when:
A. Same asset priced differently in two markets
B. Premium is high
C. Strike equals market
D. Futures exist
Answer: A
44. Futures price converges to spot price:
A. At inception
B. At expiration
C. Randomly
D. Never
Answer: B
45. Call option is valuable when:
A. Price expected to fall
B. Price expected to rise
C. Stable price
D. Interest falls
Answer: B
46. Put option is valuable when:
A. Price expected to rise
B. Price expected to fall
C. Price stable
D. Dividend paid
Answer: B
47. Speculator expecting price increase should:
A. Buy put
B. Sell call
C. Buy call
D. Short futures
Answer: C
48. Maximum loss for put writer:
A. Unlimited
B. Strike price – Premium
C. Premium
D. Zero
Answer: B
49. Derivatives are primarily used for:
A. Tax avoidance
B. Risk management
C. Dividend declaration
D. Accounting entries
Answer: B
50. Basis risk arises when:
A. Hedge imperfectly offsets exposure
B. No premium paid
C. Option expires
D. Futures standardized
Answer: A
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