CFA Level I - Derivatives: Top 100 Questions
1. Question: Which of the following is the fundamental characteristic that
distinguishes derivative securities from traditional securities?
a) Higher trading volume
b) Value derived from an underlying asset
c) Longer maturity periods
d) Greater regulatory oversight
Answer: b) Value derived from an underlying asset
2. Question: A forward contract is best described as:
a) An exchange-traded standardized contract.
b) An over-the-counter customized contract.
c) An option that gives the holder the right, but not the obligation, to buy or sell an asset.
d) A contract where cash changes hands daily based on price movements.
Answer: b) An over-the-counter customized contract
3. Question: Which of the following derivatives obligates the buyer to purchase the
underlying asset at a predetermined price on a future date?
a) Call option
b) Put option
c) Forward contract
d) Swap
Answer: c) Forward contract
4. Question: The price specified in the derivative contract at which the underlying
asset will be bought or sold is known as the:
a) Spot price
b) Market price
c) Exercise price
d) Premium
Answer: c) Exercise price
5. Question: Which of the following is a key difference between futures and forward
contracts?
a) One is traded on an exchange, and the other is not.
b) One involves an obligation, and the other is optional.
, c) One has a fixed maturity, and the other does not.
d) One is used for hedging, and the other is for speculation.
Answer: a) One is traded on an exchange, and the other is not.
6. Question: What is the primary purpose of margin requirements in futures trading?
a) To increase the profitability of trading.
b) To reduce the credit risk of the exchange.
c) To limit the participation of small investors.
d) To standardize contract sizes.
Answer: b) To reduce the credit risk of the exchange.
7. Question: The initial margin in a futures contract is:
a) The profit or loss on the first day of trading.
b) The amount deposited by both the buyer and seller when the contract is initiated.
c) The minimum amount that must be maintained in the margin account.
d) The price paid for the futures contract.
Answer: b) The amount deposited by both the buyer and seller when the contract is
initiated.
8. Question: If the price of the underlying asset in a futures contract moves favorably
for a trader, the change in the margin account is called:
a) Margin call
b) Variation margin
c) Maintenance margin
d) Initial margin
Answer: b) Variation margin
9. Question: A margin call occurs when the balance in the margin account falls below
the:
a) Initial margin
b) Variation margin
c) Maintenance margin
d) Settlement price
Answer: c) Maintenance margin
10. Question: Which of the following describes a long position in a futures contract?
a) An obligation to deliver the underlying asset.
b) The right to buy the underlying asset at a future date.
c) An obligation to buy the underlying asset at a future date.
d) The right to sell the underlying asset at a future date.
, Answer: c) An obligation to buy the underlying asset at a future date.
11. Question: A put option gives the buyer the:
a) Right to buy the underlying asset at a specific price.
b) Obligation to buy the underlying asset at a specific price.
c) Right to sell the underlying asset at a specific price.
d) Obligation to sell the underlying asset at a specific price.
Answer: c) Right to sell the underlying asset at a specific price.
12. Question: The seller (writer) of a call option:
a) Has the right to buy the underlying asset.
b) Has the obligation to buy the underlying asset if the option is exercised.
c) Has the right to sell the underlying asset.
d) Has the obligation to sell the underlying asset if the option is exercised.
Answer: d) Has the obligation to sell the underlying asset if the option is exercised.
13. Question: The premium of an option contract is the:
a) Price at which the underlying asset can be bought or sold.
b) Profit earned by the option buyer if the option is exercised.
c) Price paid by the buyer to the seller for the option contract.
d) Difference between the spot price and the exercise price.
Answer: c) Price paid by the buyer to the seller for the option contract.
14. Question: An option is said to be "in-the-money" when:
a) The spot price of the underlying asset equals the exercise price.
b) Exercising the option would result in a profit for the buyer.
c) The premium paid for the option is greater than the potential profit.
d) The time to expiration is very short.
Answer: b) Exercising the option would result in a profit for the buyer.
15. Question: For a call option, when is it in-the-money?
a) Spot price > Exercise price
b) Spot price < Exercise price
c) Spot price = Exercise price
d) Spot price is irrelevant
Answer: a) Spot price > Exercise price
16. Question: For a put option, when is it in-the-money?
a) Spot price > Exercise price
b) Spot price < Exercise price
1. Question: Which of the following is the fundamental characteristic that
distinguishes derivative securities from traditional securities?
a) Higher trading volume
b) Value derived from an underlying asset
c) Longer maturity periods
d) Greater regulatory oversight
Answer: b) Value derived from an underlying asset
2. Question: A forward contract is best described as:
a) An exchange-traded standardized contract.
b) An over-the-counter customized contract.
c) An option that gives the holder the right, but not the obligation, to buy or sell an asset.
d) A contract where cash changes hands daily based on price movements.
Answer: b) An over-the-counter customized contract
3. Question: Which of the following derivatives obligates the buyer to purchase the
underlying asset at a predetermined price on a future date?
a) Call option
b) Put option
c) Forward contract
d) Swap
Answer: c) Forward contract
4. Question: The price specified in the derivative contract at which the underlying
asset will be bought or sold is known as the:
a) Spot price
b) Market price
c) Exercise price
d) Premium
Answer: c) Exercise price
5. Question: Which of the following is a key difference between futures and forward
contracts?
a) One is traded on an exchange, and the other is not.
b) One involves an obligation, and the other is optional.
, c) One has a fixed maturity, and the other does not.
d) One is used for hedging, and the other is for speculation.
Answer: a) One is traded on an exchange, and the other is not.
6. Question: What is the primary purpose of margin requirements in futures trading?
a) To increase the profitability of trading.
b) To reduce the credit risk of the exchange.
c) To limit the participation of small investors.
d) To standardize contract sizes.
Answer: b) To reduce the credit risk of the exchange.
7. Question: The initial margin in a futures contract is:
a) The profit or loss on the first day of trading.
b) The amount deposited by both the buyer and seller when the contract is initiated.
c) The minimum amount that must be maintained in the margin account.
d) The price paid for the futures contract.
Answer: b) The amount deposited by both the buyer and seller when the contract is
initiated.
8. Question: If the price of the underlying asset in a futures contract moves favorably
for a trader, the change in the margin account is called:
a) Margin call
b) Variation margin
c) Maintenance margin
d) Initial margin
Answer: b) Variation margin
9. Question: A margin call occurs when the balance in the margin account falls below
the:
a) Initial margin
b) Variation margin
c) Maintenance margin
d) Settlement price
Answer: c) Maintenance margin
10. Question: Which of the following describes a long position in a futures contract?
a) An obligation to deliver the underlying asset.
b) The right to buy the underlying asset at a future date.
c) An obligation to buy the underlying asset at a future date.
d) The right to sell the underlying asset at a future date.
, Answer: c) An obligation to buy the underlying asset at a future date.
11. Question: A put option gives the buyer the:
a) Right to buy the underlying asset at a specific price.
b) Obligation to buy the underlying asset at a specific price.
c) Right to sell the underlying asset at a specific price.
d) Obligation to sell the underlying asset at a specific price.
Answer: c) Right to sell the underlying asset at a specific price.
12. Question: The seller (writer) of a call option:
a) Has the right to buy the underlying asset.
b) Has the obligation to buy the underlying asset if the option is exercised.
c) Has the right to sell the underlying asset.
d) Has the obligation to sell the underlying asset if the option is exercised.
Answer: d) Has the obligation to sell the underlying asset if the option is exercised.
13. Question: The premium of an option contract is the:
a) Price at which the underlying asset can be bought or sold.
b) Profit earned by the option buyer if the option is exercised.
c) Price paid by the buyer to the seller for the option contract.
d) Difference between the spot price and the exercise price.
Answer: c) Price paid by the buyer to the seller for the option contract.
14. Question: An option is said to be "in-the-money" when:
a) The spot price of the underlying asset equals the exercise price.
b) Exercising the option would result in a profit for the buyer.
c) The premium paid for the option is greater than the potential profit.
d) The time to expiration is very short.
Answer: b) Exercising the option would result in a profit for the buyer.
15. Question: For a call option, when is it in-the-money?
a) Spot price > Exercise price
b) Spot price < Exercise price
c) Spot price = Exercise price
d) Spot price is irrelevant
Answer: a) Spot price > Exercise price
16. Question: For a put option, when is it in-the-money?
a) Spot price > Exercise price
b) Spot price < Exercise price
