FIN 6100 EXAM 4 QUESTIONS WITH
100% CORRECT ANSWERS | LATEST
VERSION 2025/2026.
Derivative - ANS A contract between two individuals that has cash flows based on the value
of some asset or event
What are derivative contracts? - ANS Contracts between two individuals or entities.
In a derivative contract, what happens to cash flow between the parties? - ANS Whatever
cash flow one party gains, the other has to lose an identical amount.
Types of Derivatives - ANS Forwards, futures, options, swaps
Swaps - ANS used to trade expenses with another party
Interest Rate Swaps - ANS can trade fixed payment stream for a variable payment stream or
vice versa
Currency Swaps - ANS 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 - ANS contracts that give the owner the right to buy or sell the underlying asset
-Created by investors and sold to other investors
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,-options expand investment opportunities, lower costs, increase leverage
What are the two forms of options? - ANS Call options and put options.
What is a call option? - ANS 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? - ANS 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? - ANS The option to buy shares of stock at a specified time in the
future.
When do investors purchase call options? - ANS When they expect the underlying security's
price to rise.
Exercise price - ANS The fixed price at which an option holder can buy or sell the underlying.
Also called strike price, striking price, or strike.
Expiration date - ANS the last day a product is considered fresh; also called maturity; certain
date
Option Premium - ANS price paid by buyer to seller to obtain the right
Put Option - ANS investors purchase puts if they expect the underlying security's price to fall
How Options Work - ANS -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:
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, 1. option may expire worthless
2. option may be exercised
3. option may be sold in the secondary market
Option Trading - ANS -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? - ANS An intermediary between buyers
and sellers of options to ensure fulfillment of obligations.
Who owns the Options Clearing Corporation? - ANS It is jointly owned by all exchanges.
How does the transaction process work with the Options Clearing Corporation? - ANS The
seller sells options to OCC, and the buyer buys from OCC.
What must an option writer do when selling options through the OCC? - ANS The option
writer must post margin or the underlying security with a brokerage that is a member of the
OCC.
Option Positions - ANS Long call
Long put
Short call
Short put
Long the Contract - ANS 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 - ANS You're paid to accept the risk that the other person might exercise
the option and you have to trade the asset
3 | Page @COPYRIGHT 2025/2026 ALLRIGHTS RESERVED
100% CORRECT ANSWERS | LATEST
VERSION 2025/2026.
Derivative - ANS A contract between two individuals that has cash flows based on the value
of some asset or event
What are derivative contracts? - ANS Contracts between two individuals or entities.
In a derivative contract, what happens to cash flow between the parties? - ANS Whatever
cash flow one party gains, the other has to lose an identical amount.
Types of Derivatives - ANS Forwards, futures, options, swaps
Swaps - ANS used to trade expenses with another party
Interest Rate Swaps - ANS can trade fixed payment stream for a variable payment stream or
vice versa
Currency Swaps - ANS 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 - ANS contracts that give the owner the right to buy or sell the underlying asset
-Created by investors and sold to other investors
1 | Page @COPYRIGHT 2025/2026 ALLRIGHTS RESERVED
,-options expand investment opportunities, lower costs, increase leverage
What are the two forms of options? - ANS Call options and put options.
What is a call option? - ANS 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? - ANS 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? - ANS The option to buy shares of stock at a specified time in the
future.
When do investors purchase call options? - ANS When they expect the underlying security's
price to rise.
Exercise price - ANS The fixed price at which an option holder can buy or sell the underlying.
Also called strike price, striking price, or strike.
Expiration date - ANS the last day a product is considered fresh; also called maturity; certain
date
Option Premium - ANS price paid by buyer to seller to obtain the right
Put Option - ANS investors purchase puts if they expect the underlying security's price to fall
How Options Work - ANS -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:
2 | Page @COPYRIGHT 2025/2026 ALLRIGHTS RESERVED
, 1. option may expire worthless
2. option may be exercised
3. option may be sold in the secondary market
Option Trading - ANS -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? - ANS An intermediary between buyers
and sellers of options to ensure fulfillment of obligations.
Who owns the Options Clearing Corporation? - ANS It is jointly owned by all exchanges.
How does the transaction process work with the Options Clearing Corporation? - ANS The
seller sells options to OCC, and the buyer buys from OCC.
What must an option writer do when selling options through the OCC? - ANS The option
writer must post margin or the underlying security with a brokerage that is a member of the
OCC.
Option Positions - ANS Long call
Long put
Short call
Short put
Long the Contract - ANS 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 - ANS You're paid to accept the risk that the other person might exercise
the option and you have to trade the asset
3 | Page @COPYRIGHT 2025/2026 ALLRIGHTS RESERVED
