Derivatives and Risk Management (ECON F 354 and F 311)

Quiz 1 - 15th Feb. 2025 (15 minutes) - Closed Book

6. 7. 8. 9. 10.

All Questions have only one single correct answer - Mark answer without
smudging in the box above - Correct Answer (+) 2.25 and wrong answer (-) 0.75
1. A trader buys 10 long contracts on gold futures with a strike price of $1400 per ounce and each contract is
for 200 ounces. The initial margin is set at 3% and maintenance margin is 80%. Pick the correct choice?
I. Initial margin is 67,200 USD
II. Maintenance margin is 84,000 USD
III. Contract size is 2,80,000 USD
A. Only I & II B. Only II C. I, II & III D. none of the above
2. From question 1 above, the end of the day settlement price turns out to be $1450 per ounce which of the
following are correct?
I. There will be a margin call of 16,800 USD
II. The day end margin balance 1,84,000 USD
III. The trader makes a loss of 1,00,000 USD
A. Only III B. Only II C. I, II & III D. none of the above
3. From question 1 above, if during the same day the trader buys another 7 short gold futures contracts for a
strike price $1500 per ounce and if the final settlement price is $ 1600? How much profit (+) or loss (-) does
he make finally in USD
A. (-) 3,60,00/- B. (-) 1,40,000/- C. +4,00,000/ D. +2,60,000/-
4. Which of the following is matched Correctly
I. Short Put - writer has the right to sell while the buyer has the obligation to buy
II. Long Call - writer has the obligation to sell while the buyer has the right to buy
III. Long Put - buyer has the obligation to sell while the writer has the right to buy
IV. Short Call - buyer has the right to buy while the writer has the obligation to sell
A. only I and II B. Only III and IV C. Only II and IV D. Only I and III
5. Which of the following is not correctly matched
I. Forwards are exclusively traded on exchange markets
II. Futures are predominantly traded on Over the Counter markets
III. Options provide higher leverage than futures
IV. Options have initial cost while forwards and futures do not
A. Only I & IV B. Only II & III C. Only I & II D. Only III & IV
6. An investor enters a forward position to sell 1,00,000 British pounds for US dollars at an exchange rate of
1.9000 USD per pound. He makes a loss of $2000 at the end of the contract what is the exchange rate at
the end of the contract in USD per pound?
A. 1.7900 B. 1.7700 C. 1.9200 D. 1.9700
7. In the question 6 above, if the end of contract exchange rate is 1.8700, what will the gain or loss be?
A. Profit of $3000 B. Loss of $1800 C. Profit of $1000 D. Loss of $1000
8. An investor holds 50,000 shares of a stock. The market price is $30 per share and the beta of the stock is
1.3. If index futures are used to hedge with index futures prices being 1,500 and one contract is for delivery
of $50 times the index. What should be the strategy for the investor
A. 150 Short contracts D. 50 Long contracts C. 26 Short contracts D. 39 Long Contracts
9. Which of the following is not the source of basis risk?
I. Asset whose price is to be hedged may not be exactly same as the underlying asset in futures contract
II. Uncertainty as to the exact date when the asset will be bought or sold
III. Hedge may require the futures contract to be closed out before its delivery
IV. Hedge contract held till maturity/ expiration for the assets with same underlying asset in futures contract
A. Only I and II B. Only II and IV C. Only IV D. Only III
10. Arguments for and against hedging can be due to the following factors
I. Shareholders having diversified portfolio of stocks
II. Shareholders having stocks of both buyers and suppliers of the same commodity or product
III. Markets where producers can pass on the changes in production costs to the customers
A. Only I & II B. Only II & III C. Only I & III D. I, II &III

Do your rough work at the back of the sheet (no extra sheet will be provided)
 Derivatives and Risk Management (ECON F 354 and F 311)
Quiz 1 - 15th Feb. 2025 (15 minutes) - Closed Book
WRITE YOUR SERIAL NUMBER FROM ATTENDANCE SHEET
ID: 2 0 2 H SL: _______
Name:
1. 2. 3. 4. 5.

6. 7. 8. 9. 10.

All Questions have only one single correct answer - Mark answer without
smudging in the box above - Correct Answer (+) 2.25 and wrong answer (-) 0.75
1. Which of the following is not correctly matched
I. Forwards are exclusively traded on exchange markets
II. Futures are predominantly traded on Over the Counter markets
III. Options provide higher leverage than futures
IV. Options have initial cost while forwards and futures do not
A. Only I & IV B. Only I & II C. Only II & III D. Only III & IV
2. An investor holds 50,000 shares of a stock. The market price is $30 per share and the beta of the stock is
1.3. If index futures are used to hedge with index futures prices being 1,500 and one contract is for delivery
of $50 times the index. What should be the strategy for the investor
A. 26 Short contracts B. 50 Long contracts C. 150 Short contracts D. 39 Long Contracts
3. An investor enters a forward position to sell 1,00,000 British pounds for US dollars at an exchange rate of
1.9000 USD per pound. He makes a loss of $2000 at the end of the contract what is the exchange rate at
the end of the contract in USD per pound?
A. 1.9700 B. 1.7700 C. 1.7900 D. 1.9200
4. In the question 3 above, if the end of contract exchange rate is 1.8700, what will the gain or loss be?
A. Profit of $1000 B. Loss of $1800 C. Profit of $3000 D. Loss of $1000
5. Which of the following is not the source of basis risk?
I. Asset whose price is to be hedged may not be exactly same as the underlying asset in futures contract
II. Uncertainty as to the exact date when the asset will be bought or sold
III. Hedge may require the futures contract to be closed out before its delivery
IV. Hedge contract held till maturity/ expiration for the assets with same underlying asset in futures contract
A. Only IV B. Only II and IV C. Only I and II D. Only III
6. Which of the following is matched Correctly
I. Short Put - writer has the right to sell while the buyer has the obligation to buy
II. Long Call - writer has the obligation to sell while the buyer has the right to buy
III. Long Put - buyer has the obligation to sell while the writer has the right to buy
IV. Short Call - buyer has the right to buy while the writer has the obligation to sell
A. Only I and II B. Only II and IV C. Only I and III D. Only III and IV
7. Arguments for and against hedging can be due to the following factors
I. Shareholders having diversified portfolio of stocks
II. Shareholders having stocks of both buyers and suppliers of the same commodity or product
III. Markets where producers can pass on the changes in production costs to the customers
A. Only I & II B. Only II & III C. I, II &III D. Only I & III
8. A trader buys 10 long contracts on gold futures with a strike price of $1400 per ounce and each contract is
for 200 ounces. The initial margin is set at 3% and maintenance margin is 80%. Pick the correct choice?
I. Initial margin is 67,200 USD
II. Maintenance margin is 84,000 USD
III. Contract size is 2,80,000 USD
A. none of the above B. Only II C. Only I & II D. I, II & III
9. From question 8 above, the end of the day settlement price turns out to be $1450 per ounce which of the
following are correct?
I. There will be a margin call of 16,800 USD
II. The day end margin balance 1,84,000 USD
III. The trader makes a loss of 1,00,000 USD
A. none of the above B. Only III C. I, II & III D. Only II
10. From question 8 above, if during the same day the trader buys another 7 short gold futures contracts for a
strike price $1500 per ounce and if the final settlement price is $ 1600? How much profit (+) or loss (-) does
he make finally in USD
A. (-) 3,60,00/- B. (-) 1,40,000/- C. +2,60,000/- D. +4,00,000-/

Do your rough work at the back of the sheet (no extra sheet will be provided)