FIN 6100 Exam 4 Questions and Answers Already Passed Latest Update 2025-2026
Derivative - Answers A contract between two individuals that has cash flows based on the value
of some asset or event
What are derivative contracts? - Answers Contracts between two individuals or entities.
In a derivative contract, what happens to cash flow between the parties? - Answers Whatever
cash flow one party gains, the other has to lose an identical amount.
Types of Derivatives - Answers Forwards, futures, options, swaps
Swaps - Answers used to trade expenses with another party
Interest Rate Swaps - Answers can trade fixed payment stream for a variable payment stream or
vice versa
Currency Swaps - Answers can trade expenses owed in a foreign country for no expense owed
by a counter party in domestic country. No need to convert currencies
Options - Answers contracts that give the owner the right to buy or sell the underlying asset
-Created by investors and sold to other investors
-options expand investment opportunities, lower costs, increase leverage
What are the two forms of options? - Answers Call options and put options.
What is a call option? - Answers A call option gives the owner the right to buy an asset at a pre-
agreed upon price by a set date.
What is a put option? - Answers A put option gives the owner the right to sell an asset at a pre-
agreed upon price by a set date.
What is a Call Option? - Answers The option to buy shares of stock at a specified time in the
future.
When do investors purchase call options? - Answers When they expect the underlying security's
price to rise.
Exercise price - Answers The fixed price at which an option holder can buy or sell the underlying.
Also called strike price, striking price, or strike.
Expiration date - Answers the last day a product is considered fresh; also called maturity; certain
date
, Option Premium - Answers price paid by buyer to seller to obtain the right
Put Option - Answers investors purchase puts if they expect the underlying security's price to
fall
How Options Work - Answers -Call buyer/seller expects the price of the underlying security to
increase, decrease, or stay steady
-Put buyer/seller expects the price of the underlying security to decrease, increase, or stay
steady
Possible Courses of action:
1. option may expire worthless
2. option may be exercised
3. option may be sold in the secondary market
Option Trading - Answers -exchanges have standardized exercise dates, exercise prices, and
contract quantities (100 shares)
-non-standardized options can be traded over the counter
What is the role of the Options Clearing Corporation? - Answers An intermediary between buyers
and sellers of options to ensure fulfillment of obligations.
Who owns the Options Clearing Corporation? - Answers It is jointly owned by all exchanges.
How does the transaction process work with the Options Clearing Corporation? - Answers The
seller sells options to OCC, and the buyer buys from OCC.
What must an option writer do when selling options through the OCC? - Answers The option
writer must post margin or the underlying security with a brokerage that is a member of the OCC.
Option Positions - Answers Long call
Long put
Short call
Short put
Long the Contract - Answers own the right to decide whether or not to exercise the option. You
pay the premium to the other person in the contract to buy that right
Short the Contract - Answers You're paid to accept the risk that the other person might exercise
the option and you have to trade the asset
Derivative - Answers A contract between two individuals that has cash flows based on the value
of some asset or event
What are derivative contracts? - Answers Contracts between two individuals or entities.
In a derivative contract, what happens to cash flow between the parties? - Answers Whatever
cash flow one party gains, the other has to lose an identical amount.
Types of Derivatives - Answers Forwards, futures, options, swaps
Swaps - Answers used to trade expenses with another party
Interest Rate Swaps - Answers can trade fixed payment stream for a variable payment stream or
vice versa
Currency Swaps - Answers can trade expenses owed in a foreign country for no expense owed
by a counter party in domestic country. No need to convert currencies
Options - Answers contracts that give the owner the right to buy or sell the underlying asset
-Created by investors and sold to other investors
-options expand investment opportunities, lower costs, increase leverage
What are the two forms of options? - Answers Call options and put options.
What is a call option? - Answers A call option gives the owner the right to buy an asset at a pre-
agreed upon price by a set date.
What is a put option? - Answers A put option gives the owner the right to sell an asset at a pre-
agreed upon price by a set date.
What is a Call Option? - Answers The option to buy shares of stock at a specified time in the
future.
When do investors purchase call options? - Answers When they expect the underlying security's
price to rise.
Exercise price - Answers The fixed price at which an option holder can buy or sell the underlying.
Also called strike price, striking price, or strike.
Expiration date - Answers the last day a product is considered fresh; also called maturity; certain
date
, Option Premium - Answers price paid by buyer to seller to obtain the right
Put Option - Answers investors purchase puts if they expect the underlying security's price to
fall
How Options Work - Answers -Call buyer/seller expects the price of the underlying security to
increase, decrease, or stay steady
-Put buyer/seller expects the price of the underlying security to decrease, increase, or stay
steady
Possible Courses of action:
1. option may expire worthless
2. option may be exercised
3. option may be sold in the secondary market
Option Trading - Answers -exchanges have standardized exercise dates, exercise prices, and
contract quantities (100 shares)
-non-standardized options can be traded over the counter
What is the role of the Options Clearing Corporation? - Answers An intermediary between buyers
and sellers of options to ensure fulfillment of obligations.
Who owns the Options Clearing Corporation? - Answers It is jointly owned by all exchanges.
How does the transaction process work with the Options Clearing Corporation? - Answers The
seller sells options to OCC, and the buyer buys from OCC.
What must an option writer do when selling options through the OCC? - Answers The option
writer must post margin or the underlying security with a brokerage that is a member of the OCC.
Option Positions - Answers Long call
Long put
Short call
Short put
Long the Contract - Answers own the right to decide whether or not to exercise the option. You
pay the premium to the other person in the contract to buy that right
Short the Contract - Answers You're paid to accept the risk that the other person might exercise
the option and you have to trade the asset
