FIN 370 Derivatives and Options Exam
Practice Questions And Correct Answers
(Verified Answers) Plus Rationales 2027
Q&A | Instant Download Pdf
1. What is a derivative?
A. A security that always pays a fixed interest rate
B. A financial instrument whose value is derived from an underlying asset or
variable
C. A type of corporate bond
D. A common stock issued by a corporation
Answer: B. A financial instrument whose value is derived from an
underlying asset or variable
Rationale: A derivative derives its value from an underlying asset, index,
interest rate, currency, commodity, or other variable.
,2. Which of the following is an example of an underlying asset for a
derivative?
A. Stock
B. Commodity
C. Currency
D. All of the above
Answer: D. All of the above
Rationale: Stocks, commodities, currencies, interest rates, indexes, and
other financial variables can serve as underlying assets for derivatives.
3. Which derivative gives the holder the right, but not the obligation, to
buy or sell an underlying asset at a specified price?
A. Forward contract
B. Futures contract
C. Option
D. Swap
Answer: C. Option
Rationale: An option gives its buyer a right without imposing an obligation
to exercise the contract.
,4. A call option gives the holder the right to:
A. Sell the underlying asset at the strike price
B. Buy the underlying asset at the strike price
C. Receive dividends from the underlying asset
D. Borrow the underlying asset
Answer: B. Buy the underlying asset at the strike price
Rationale: A call option provides the right to purchase the underlying asset
at the predetermined exercise or strike price.
5. A put option gives the holder the right to:
A. Buy the underlying asset
B. Sell the underlying asset
C. Exchange one currency for another
D. Receive interest payments
Answer: B. Sell the underlying asset
Rationale: A put option gives the holder the right to sell the underlying
asset at the specified strike price.
, 6. The price specified in an option contract at which the underlying asset
can be bought or sold is called the:
A. Premium
B. Spot price
C. Strike price
D. Settlement price
Answer: C. Strike price
Rationale: The strike price, also called the exercise price, is the
predetermined price at which the option can be exercised.
7. The price paid by an option buyer to the option seller is called the:
A. Margin
B. Premium
C. Coupon
D. Dividend
Answer: B. Premium
Rationale: The option premium is the amount paid by the buyer to obtain
the rights provided by the option contract.
Practice Questions And Correct Answers
(Verified Answers) Plus Rationales 2027
Q&A | Instant Download Pdf
1. What is a derivative?
A. A security that always pays a fixed interest rate
B. A financial instrument whose value is derived from an underlying asset or
variable
C. A type of corporate bond
D. A common stock issued by a corporation
Answer: B. A financial instrument whose value is derived from an
underlying asset or variable
Rationale: A derivative derives its value from an underlying asset, index,
interest rate, currency, commodity, or other variable.
,2. Which of the following is an example of an underlying asset for a
derivative?
A. Stock
B. Commodity
C. Currency
D. All of the above
Answer: D. All of the above
Rationale: Stocks, commodities, currencies, interest rates, indexes, and
other financial variables can serve as underlying assets for derivatives.
3. Which derivative gives the holder the right, but not the obligation, to
buy or sell an underlying asset at a specified price?
A. Forward contract
B. Futures contract
C. Option
D. Swap
Answer: C. Option
Rationale: An option gives its buyer a right without imposing an obligation
to exercise the contract.
,4. A call option gives the holder the right to:
A. Sell the underlying asset at the strike price
B. Buy the underlying asset at the strike price
C. Receive dividends from the underlying asset
D. Borrow the underlying asset
Answer: B. Buy the underlying asset at the strike price
Rationale: A call option provides the right to purchase the underlying asset
at the predetermined exercise or strike price.
5. A put option gives the holder the right to:
A. Buy the underlying asset
B. Sell the underlying asset
C. Exchange one currency for another
D. Receive interest payments
Answer: B. Sell the underlying asset
Rationale: A put option gives the holder the right to sell the underlying
asset at the specified strike price.
, 6. The price specified in an option contract at which the underlying asset
can be bought or sold is called the:
A. Premium
B. Spot price
C. Strike price
D. Settlement price
Answer: C. Strike price
Rationale: The strike price, also called the exercise price, is the
predetermined price at which the option can be exercised.
7. The price paid by an option buyer to the option seller is called the:
A. Margin
B. Premium
C. Coupon
D. Dividend
Answer: B. Premium
Rationale: The option premium is the amount paid by the buyer to obtain
the rights provided by the option contract.
