Pre Session Quiz - Introduction To Derivatives | Attempts: 258

Approved & Edited by ProProfs Editorial Team

The editorial team at ProProfs Quizzes consists of a select group of subject experts, trivia writers, and quiz masters who have authored over 10,000 quizzes taken by more than 100 million users. This team includes our in-house seasoned quiz moderators and subject matter experts. Our editorial experts, spread across the world, are rigorously trained using our comprehensive guidelines to ensure that you receive the highest quality quizzes.

Learn about Our Editorial Process

| By Anurag_quiz

Anurag_quiz

Community Contributor

Quizzes Created: 5 | Total Attempts: 3,123

Questions: 5 | Attempts: 258 | Updated: Mar 19, 2023

Settings

Feedback

During the Quiz End of Quiz

Difficulty

Sequential Easy First Hard First

Play as

Quiz Flashcard

Create your own Quiz

Share on Facebook Share on Twitter Share on Whatsapp Share on Pinterest Share on Email Copy to Clipboard Embed on your website

Questions and Answers

1.

Derivatives are financial instruments used for
- A.
  
  Speculation ("bets")
- B.
  
  To hedge ("insurance").
- C.
  
  Provide leverage
- D.
  
  All the three options
Correct Answer
D. All the three options

Explanation
Derivatives are financial instruments that serve multiple purposes in the market. They can be used for speculation, allowing investors to make bets on the future direction of an asset's price. Additionally, derivatives can be used for hedging, providing insurance against potential losses in other investments. Lastly, derivatives offer leverage, allowing investors to control a larger position with a smaller amount of capital. Therefore, all three options - speculation, hedging, and leverage - accurately describe the uses of derivatives.

Rate this question:
2.

Value for derivatives is derived from?
- A.
  
  Underlying asset
- B.
  
  Face value of the stock
- C.
  
  Liquidity in the market
Correct Answer
A. Underlying asset

Explanation
The value for derivatives is derived from the underlying asset. Derivatives are financial contracts whose value is based on an underlying asset, such as stocks, bonds, commodities, or currencies. The price of the derivative is determined by the price movements of the underlying asset. Therefore, the value of derivatives is directly linked to the performance and fluctuations of the underlying asset.

Rate this question:
3.

Which one is not a derivative product?
- A.
  
  Forwards
- B.
  
  Futures
- C.
  
  Options
- D.
  
  Equity
Correct Answer
D. Equity

Explanation
Equity is not a derivative product. Derivative products are financial instruments whose value is derived from an underlying asset, such as stocks, commodities, or currencies. Forwards, futures, and options are all examples of derivative products because their value is based on the value of an underlying asset. However, equity refers to ownership in a company and is not considered a derivative product.

Rate this question:
4.

Hedging
- A.
  
  Is the process of diversifying risk.
- B.
  
  Is the process of reducing risk by buying risk-free government bonds
- C.
  
  Is the process of reducing risk by engaging in a financial transaction which offsets a position already taken.
- D.
  
  Is the process of trading financial derivatives
Correct Answer
C. Is the process of reducing risk by engaging in a financial transaction which offsets a position already taken.

Explanation
Hedging is the process of reducing risk by engaging in a financial transaction which offsets a position already taken. This means that when an individual or entity hedges, they take a second position that is opposite to their initial position in order to minimize potential losses. By doing so, they are able to protect themselves against adverse market movements and mitigate the impact of any potential losses. This strategy is commonly used in financial markets to manage risk and protect investments.

Rate this question:
5.

Arbitrage is an attempt to make risk-free profits
- A.
  
  True
- B.
  
  False
Correct Answer
A. True

Explanation
Arbitrage is a strategy used in financial markets to take advantage of price discrepancies between different markets or assets. By buying low in one market and selling high in another, traders can make risk-free profits. This is because they are exploiting temporary imbalances in prices, which are expected to correct themselves in the future. Therefore, the statement that arbitrage is an attempt to make risk-free profits is true.

Rate this question:

Quiz Review Timeline +

Our quizzes are rigorously reviewed, monitored and continuously updated by our expert board to maintain accuracy, relevance, and timeliness.

Current Version
Mar 19, 2023

Quiz Edited by
ProProfs Editorial Team
Aug 28, 2012

Quiz Created by
Anurag_quiz

Pre Session Quiz - Introduction To Derivatives

Derivatives are financial instruments used for

Value for derivatives is derived from?

Which one is not a derivative product?

Hedging

Arbitrage is an attempt to make risk-free profits