FIN 470 Exam Review Questions with Verified
Correct Answers
derivative
an instrument whose value depends on the values of other more basic underlying variables
hedge risks
change nature of a liability
speculate
make bet on future direction of market
arbitrage
lock in arbitrage profits
trading derivatives
large volume accompanied by increasing volatility in underlying commodities
swap execution facilities
venue to host many trades, similar to exchange
central counter-party
for many trades, similar to exchange
central repository
for reporting of trades
, future contract
an agreement to buy or sell an asset at a certain time in the future for a certain price
option
contract giving holder the right, but not obligation, to buy(sell) an asset at a fixed price(strike or
exercise price) on or before a given date(expiration)
call option
gives holder right to buy
put option
gives holder right to sell
writing option
sellers of options are said to "write" the contract
European exercise
at expirations
American exercise
any time prior
stock options
individual stocks
stock index option
sp500, sp100, nasdaq-100
Correct Answers
derivative
an instrument whose value depends on the values of other more basic underlying variables
hedge risks
change nature of a liability
speculate
make bet on future direction of market
arbitrage
lock in arbitrage profits
trading derivatives
large volume accompanied by increasing volatility in underlying commodities
swap execution facilities
venue to host many trades, similar to exchange
central counter-party
for many trades, similar to exchange
central repository
for reporting of trades
, future contract
an agreement to buy or sell an asset at a certain time in the future for a certain price
option
contract giving holder the right, but not obligation, to buy(sell) an asset at a fixed price(strike or
exercise price) on or before a given date(expiration)
call option
gives holder right to buy
put option
gives holder right to sell
writing option
sellers of options are said to "write" the contract
European exercise
at expirations
American exercise
any time prior
stock options
individual stocks
stock index option
sp500, sp100, nasdaq-100
