Free Online CFA Level 1 Practice Questions-34 Multiple Choice Questions on Derivatives

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similar to FRAs as there is no deliverable asset - settled in cash, based on a notional amount and the spread between the strike rate and the reference rate, mostly European optionscombination of long interest rate call option and a short interest rate option has the same payoff as Forward Rate Agreement

• interest rate options
• interest rate collar
• interest rate caps
• interest rate floors

buying a stock and put option

• option value
• protective put
• put call parity
• parties in FRA

Forward contract to borrow/lend money at a certain rate at some future time; settle in cash and no actual loan takes placecan be replicated with a long call and short putsettlement date: shorter one

• parties in FRA
• settlement price
• Forward Rate Agreements (FRA)
• ways to terminate swap

the process of adjusting the margin balance in a futures account each day for the change in the value of the contract assets from the previous trading day

• variation margin
• marking to market
• Euribor
• parties in FRA

notional principal ( (underlying rate at expiration - forward contract rate) (days in underlying rate/360) / (1+underlying rate at expiration (days in underlying rate/360)).

• interest rate floors
• interest rate collar
• net fixed payment
• general FRA payoff formula

equivalent to (from the a borrower's perspective) series of short interest rate puts , put a minimum on the payments of a floating-rate loan and are equivalent ot a series of short interest rate puts at the floor rate

• interest rate floors
• interest rate caps
• interest rate collar
• interest rate options

1- ((rate/100)(90/360) 1,000,000))

• option value
• t-bill future price
• settlement price
• protective put

A claim depending on a particular event e.g. options gets exercised if price is below or above strike price

• covered call
• Contingent Claim
• option value
• settlement price

know what they are

• limit up, limit down, locked limit
• marking to market
• Contingent Claim
• cheapest to deliver

call + strike price / (1+rfr)^t (=fiduciary call) = stock + put (=protective put)

• put call parity
• protective put
• settlement price
• option value

-refers to the seller's option to deliver the cheapest instrument when a futures contract allows several instruments for delivery

• interest rate collar
• interest rate caps
• contract multiplier
• cheapest to deliver

closing price of a stock but not price of last trade; used to make margin calculations at the end of each trading day

• Contingent Claim
• settlement price
• put call parity
• t-bill future price

= (swap fixed rate - LIBOR) (number of days/360) (notional principal)

• option value
• net fixed payment
• put call parity
• settlement price

conversion factor is used to multiply by the future price to determine the delivery price

• Credit Spread Option
• interest rate options
• covered call
• conversion factor in a T bond

for futures: maintain at least the initial marginfor equities: put money back in to equal maintenance margin

• interest rate floors
• margin requirements for equities and futures
• interest rate options
• interest rate caps

offers payments to the purchaser of the cap when a specified interest rate exceeds a specified ceiling (cap) interest rateequivalent to (from a borrower's perspective) series of long interest rate calls at the cap rate

• interest rate collar
• interest rate options
• interest rate floors
• interest rate caps

amount which multiplied by the index at expiration to calculate the payoff - index options are settled in cash

• cheapest to deliver
• Contingent Claim
• covered call
• contract multiplier