CMSA- INTRODUCTION TO DERIVATIVES EXAM QUESTIONS AND ANSWERS WITH COMPLETE VERIFIED SOLUTIONS

CMSA- INTRODUCTION TO DERIVATIVES EXAM

QUESTIONS AND ANSWERS WITH COMPLETE

VERIFIED SOLUTIONS


Derivative Market


Derivative market is a market developed over time to transfer risk from one party to another.


Derivative Contract


A derivative contract derives its value from an underlying asset such as a stock, currency, or commodity,

hence the name derivative.


Components of a Derivative Contract


- An Underlying Asset

- Counterparties with Long /Short Positions

- An Expiration or Maturity Date


Derivative Contract Underlying Assets


A derivative contract will derive its value based on the dynamic value of an underlying asset. Such as:

-Stocks

-Bonds

-Currencies

-Commodities

, -Market Indices

-Interest Rates


Positions in a Derivative Contract


One party is often described as holding a long position while the other holds a short position.


Long Position


Benefits when the value of the underlying asset increases.


Short Position


Benefits when the value of the underlying asset decreases


Derivative Contract Expiration/Maturity Date


This is the date when the contract agreement ends and any differences in the two positions are finally

settled.


Derivative Contract Delivery Type


Physical Delivery vs Cash-Settled


Physical Delivery


Means that at the expiration date, the quantity of the underlying asset specified in the contract will be

delivered to buyer.


Cash-Settled


Means that differences in the counterparties' positions will

be settled in cash rather than delivering the underlying asset.


Where Derivative Contracts Are Traded