CHARTERED INSTITUTE FOR
SECURITIES & INVESTMENT
LEVEL 4
INVESTMENT ADVICE DIPLOMA
DERIVATIVES — PRACTICE EXAM
TIME ALLOWED: 2 HOURS
This paper contains 80 multiple choice questions.
Answers are provided on the final page.
,How to use this practice paper
These 80 questions should be answered in two hours, in line with the real exam, so time yourself accurately.
Record your answer for each question by circling or noting your selected option.
When you have finished, check your answers against the Answer Sheet on the final page.
The exam is scored as follows:
56–80 Pass
0–55 Fail
, 1 Which of the following is a defining feature that all derivative contracts share?
A They must be traded on a regulated exchange
B They cannot be used for speculative purposes
C Their value is linked to, and derived from, the performance of an underlying asset, rate or index
D They always require physical delivery at maturity
2 The buyer of a put option has:
A The obligation to sell the underlying at the strike price
B The right, but not the obligation, to sell the underlying at the strike price
C The right, but not the obligation, to buy the underlying at the strike price
D The obligation to buy the underlying at the strike price
3 Compared with an exchange-traded contract, a bespoke OTC derivative is generally better suited to a counterparty
that:
A Wants the lowest possible counterparty risk
B Wants full pre-trade price transparency
C Wants to avoid negotiating any contract terms
D Requires a contract precisely tailored to its specific notional, dates and underlying exposure
4 A market maker in listed options primarily earns revenue by:
A Quoting two-way prices and capturing the bid-offer spread while managing resulting risk
B Taking large directional bets on market direction
C Charging a fixed annual subscription to all counterparties
D Guaranteeing profits to clients who trade with them
5 Which of the following would be classified as an 'agricultural' (soft) commodity rather than a metal?
A Cotton
B Platinum
C Palladium
D Tin
6 An inverted yield curve, where short-term yields exceed long-term yields, is often interpreted by markets as a
potential signal of:
A Robust future economic growth
B Immediate central bank rate hikes
C An impending economic slowdown or recession
D Falling short-term interest rates having already occurred
7 Which of the following is generally a right attached to ordinary shares but NOT typically to non-participating
preference shares?
A A fixed dividend entitlement
B Priority on capital repayment on winding up
C Pre-emption rights on new share issues
D Redemption at the company's option
SECURITIES & INVESTMENT
LEVEL 4
INVESTMENT ADVICE DIPLOMA
DERIVATIVES — PRACTICE EXAM
TIME ALLOWED: 2 HOURS
This paper contains 80 multiple choice questions.
Answers are provided on the final page.
,How to use this practice paper
These 80 questions should be answered in two hours, in line with the real exam, so time yourself accurately.
Record your answer for each question by circling or noting your selected option.
When you have finished, check your answers against the Answer Sheet on the final page.
The exam is scored as follows:
56–80 Pass
0–55 Fail
, 1 Which of the following is a defining feature that all derivative contracts share?
A They must be traded on a regulated exchange
B They cannot be used for speculative purposes
C Their value is linked to, and derived from, the performance of an underlying asset, rate or index
D They always require physical delivery at maturity
2 The buyer of a put option has:
A The obligation to sell the underlying at the strike price
B The right, but not the obligation, to sell the underlying at the strike price
C The right, but not the obligation, to buy the underlying at the strike price
D The obligation to buy the underlying at the strike price
3 Compared with an exchange-traded contract, a bespoke OTC derivative is generally better suited to a counterparty
that:
A Wants the lowest possible counterparty risk
B Wants full pre-trade price transparency
C Wants to avoid negotiating any contract terms
D Requires a contract precisely tailored to its specific notional, dates and underlying exposure
4 A market maker in listed options primarily earns revenue by:
A Quoting two-way prices and capturing the bid-offer spread while managing resulting risk
B Taking large directional bets on market direction
C Charging a fixed annual subscription to all counterparties
D Guaranteeing profits to clients who trade with them
5 Which of the following would be classified as an 'agricultural' (soft) commodity rather than a metal?
A Cotton
B Platinum
C Palladium
D Tin
6 An inverted yield curve, where short-term yields exceed long-term yields, is often interpreted by markets as a
potential signal of:
A Robust future economic growth
B Immediate central bank rate hikes
C An impending economic slowdown or recession
D Falling short-term interest rates having already occurred
7 Which of the following is generally a right attached to ordinary shares but NOT typically to non-participating
preference shares?
A A fixed dividend entitlement
B Priority on capital repayment on winding up
C Pre-emption rights on new share issues
D Redemption at the company's option
