OPTIONS FUTURES AND OTHER DERIVATIVES
GLOBAL EDITION ACTUAL TEST PAPER 2026
COMPLETE QUESTIONS AND SOLUTIONS
GRADED A+
◉ Commodity Futures Trading Commission. Answer: A body that
regulates trading in futures contracts in the United States.
◉ Callable Bond. Answer: A bond containing provisions that allow
the issuer to buy it back at a predetermined price at certain times
during its life.
◉ Zero-Coupon Bond. Answer: A bond that provides no coupons.
◉ Puttable Bond. Answer: A bond where the holder has the right to
sell it back to the issuer at certain predetermined times for a
predetermined price.
◉ Extendable Bond. Answer: A bond whose life can be extended at
the option of the holder.
◉ Dividend. Answer: A cash payment made to the owner of a stock.
,◉ Synthetic CDO. Answer: A CDO created by selling credit default
swaps.
◉ Downgrade Trigger. Answer: A clause in a contract that states that
the contract will be terminated with a cash settlement if the credit
rating of one side falls below a certain level.
◉ Central Clearing Party. Answer: A clearing house used for over-
the-counter contracts.
◉ Box Spread. Answer: A combination of a bull spread created from
calls and a bear spread created from puts.
◉ Interest Rate Collar. Answer: A combination of an interest-rate cap
and an interest rate floor.
◉ Futures Contract. Answer: A contract that obligates the holder to
buy or sell an asset at a predetermined delivery price during a
specified future time period. The contract is settled daily.
◉ Forward Contract. Answer: A contract that obligates the holder to
buy or sell an asset for a predetermined delivery price at a
predetermined future time.
,◉ Day Count. Answer: A convention for quoting interest rates.
◉ Convertible Bond. Answer: A corporate bond that can be
converted into a predetermined amount of the company's equity at
certain times during its life.
◉ FICO. Answer: A credit score developed by Fair Isaac Corporation.
◉ Eurocurrency. Answer: A currency that is outside the formal
control of the issuing country's monetary authorities.
◉ Package. Answer: A derivative that is a portfolio of standard calls
and puts, possibly combined with a position in forward contracts
and the asset itself.
◉ Quanto. Answer: A derivative where the payoff is defined by
variables associated with one currency but is paid in another
currency.
◉ Credit Derivative. Answer: A derivative whose payoff depends on
the creditworthiness of one or more companies or countries.
◉ Interest Rate Derivative. Answer: A derivative whose payoffs are
dependent on future interest rates.
, ◉ Implied Distribution. Answer: A distribution for a future asset
price implied from option prices.
◉ Bivariate Normal Distribution. Answer: A distribution for two
correlated variables, each of which is normal.
◉ Stock Dividend. Answer: A dividend paid in the form of additional
shares.
◉ Eurodollar. Answer: A dollar held in a bank outside the United
States.
◉ Conversion Factor. Answer: A factor used to determine the
number of bonds that must be delivered in the Chicago Board of
Trade bond futures contract.
◉ Clearing House. Answer: A firm that guarantees the performance
of the parties in a derivatives transaction (also referred to as a
clearing corporation).
◉ Prepayment function. Answer: A function estimating the
prepayment of principal on a portfolio of mortgages in terms of
other variables.
GLOBAL EDITION ACTUAL TEST PAPER 2026
COMPLETE QUESTIONS AND SOLUTIONS
GRADED A+
◉ Commodity Futures Trading Commission. Answer: A body that
regulates trading in futures contracts in the United States.
◉ Callable Bond. Answer: A bond containing provisions that allow
the issuer to buy it back at a predetermined price at certain times
during its life.
◉ Zero-Coupon Bond. Answer: A bond that provides no coupons.
◉ Puttable Bond. Answer: A bond where the holder has the right to
sell it back to the issuer at certain predetermined times for a
predetermined price.
◉ Extendable Bond. Answer: A bond whose life can be extended at
the option of the holder.
◉ Dividend. Answer: A cash payment made to the owner of a stock.
,◉ Synthetic CDO. Answer: A CDO created by selling credit default
swaps.
◉ Downgrade Trigger. Answer: A clause in a contract that states that
the contract will be terminated with a cash settlement if the credit
rating of one side falls below a certain level.
◉ Central Clearing Party. Answer: A clearing house used for over-
the-counter contracts.
◉ Box Spread. Answer: A combination of a bull spread created from
calls and a bear spread created from puts.
◉ Interest Rate Collar. Answer: A combination of an interest-rate cap
and an interest rate floor.
◉ Futures Contract. Answer: A contract that obligates the holder to
buy or sell an asset at a predetermined delivery price during a
specified future time period. The contract is settled daily.
◉ Forward Contract. Answer: A contract that obligates the holder to
buy or sell an asset for a predetermined delivery price at a
predetermined future time.
,◉ Day Count. Answer: A convention for quoting interest rates.
◉ Convertible Bond. Answer: A corporate bond that can be
converted into a predetermined amount of the company's equity at
certain times during its life.
◉ FICO. Answer: A credit score developed by Fair Isaac Corporation.
◉ Eurocurrency. Answer: A currency that is outside the formal
control of the issuing country's monetary authorities.
◉ Package. Answer: A derivative that is a portfolio of standard calls
and puts, possibly combined with a position in forward contracts
and the asset itself.
◉ Quanto. Answer: A derivative where the payoff is defined by
variables associated with one currency but is paid in another
currency.
◉ Credit Derivative. Answer: A derivative whose payoff depends on
the creditworthiness of one or more companies or countries.
◉ Interest Rate Derivative. Answer: A derivative whose payoffs are
dependent on future interest rates.
, ◉ Implied Distribution. Answer: A distribution for a future asset
price implied from option prices.
◉ Bivariate Normal Distribution. Answer: A distribution for two
correlated variables, each of which is normal.
◉ Stock Dividend. Answer: A dividend paid in the form of additional
shares.
◉ Eurodollar. Answer: A dollar held in a bank outside the United
States.
◉ Conversion Factor. Answer: A factor used to determine the
number of bonds that must be delivered in the Chicago Board of
Trade bond futures contract.
◉ Clearing House. Answer: A firm that guarantees the performance
of the parties in a derivatives transaction (also referred to as a
clearing corporation).
◉ Prepayment function. Answer: A function estimating the
prepayment of principal on a portfolio of mortgages in terms of
other variables.
