Stock Market Future And Options Quiz Mock Test: paper 1

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Stock Market Quizzes

Future and Options Quiz Mock Test (paper 1)

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Total number of questions: 30
Time allotted: 30 minutes
Pass Score: 35%
Certificate: Yes
Random questions: No
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1 / 30

1. In derivatives trading, what is the significance of a "long" position?

A) It indicates ownership of the underlying asset.

B) It means the trader expects prices to decrease.

C) It represents a short-term trade.

D) It implies an obligation to sell the asset.

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2. What is the role of a clearinghouse in the context of futures contracts?

A) To provide leverage to traders.

B) To facilitate direct transactions between buyers and sellers.

C) To ensure the integrity of trades by acting as an intermediary.

D) To set the prices of underlying assets.

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3. How do futures contracts differ from forward contracts in the derivatives market?

A) Futures contracts are standardized and traded on exchanges, while forward contracts are customized and traded over-the-counter.

B) Futures contracts have no expiration date, while forward contracts do.

C) Futures contracts are always cash-settled, while forward contracts involve physical delivery of the underlying asset.

D) Futures contracts involve more risk than forward contracts.

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4. What is the primary purpose of futures contracts in the world of derivatives?

A) To provide guaranteed returns.

B) To eliminate market risk.

C) To speculate on future price movements.

D) To offer fixed interest rates.

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5. What are derivatives in the context of financial markets?

A) Physical assets like stocks and commodities.

B) Financial contracts whose value is derived from an underlying asset.

C) Securities issued by the government.

D) Cash equivalents.

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6. In F&O trading, what does "expiry date" or "expiration date" refer to?

A) The date on which a futures contract must be settled.

B) The date on which an options contract must be exercised.

C) The date on which a contract becomes non-negotiable.

D) The date on which the market opens.

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7. What is the term used for the price at which a futures contract is executed?

A) Spot price

B) Strike price

C) Settlement price

D) Contract price

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8. What does "margin" refer to in the context of F&O trading?

A) The profit earned from a futures or options contract.

B) The difference between the current market price and the futures price.

C) The initial deposit required to enter into a futures or options contract.

D) The expiration date of a futures or options contract.

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9. What is the primary purpose of hedging in F&O trading?

A) To speculate on future price movements.

B) To minimize potential losses from adverse price movements.

C) To maximize potential profits from price fluctuations.

D) To avoid transaction costs.

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10. What role do clearinghouses play in F&O trading?

A) They provide leverage to traders.

B) They facilitate direct transactions between buyers and sellers.

C) They ensure the integrity of trades by acting as intermediaries.

D) They set the prices of underlying assets.

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11. What is the primary difference between European options and American options?

A) European options can be exercised at any time before expiration, while American options can only be exercised at expiration.

B) European options can only be exercised at expiration, while American options can be exercised at any time.

C) European options are traded on European stock exchanges, while American options are traded on American stock exchanges.

D) European options have higher premiums than American options.

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12. In options trading, what is the premium?

A) The initial deposit required to enter a trade.

B) The price paid to buy or sell an options contract.

C) The exercise price of the option.

D) The value of the underlying asset.

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13. What does it mean when an options contract is "in the money"?

A) The option has expired.

B) The option has no value.

C) The option can be exercised for a profit.

D) The option can only be exercised at a loss.

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14. What is the primary function of a put option?

A) To give the holder the right to buy the underlying asset.

B) To give the holder the right to sell the underlying asset.

C) To obligate the holder to buy the underlying asset.

D) To obligate the holder to sell the underlying asset.

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15. What is the key feature of a call option?

A) It gives the holder the right to sell the underlying asset.

B) It gives the holder the right to buy the underlying asset.

C) It obligates the holder to buy the underlying asset.

D) It obligates the holder to sell the underlying asset.

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16. What is the primary objective of using derivatives for hedging in risk management?

A) To maximize profits from price movements.

B) To speculate on future price changes.

C) To protect against adverse price movements.

D) To eliminate market riskentirely.

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17. In the context of derivatives, what is the "strike price" or "exercise price" of an options contract?

A) The price at which the underlying asset is currently trading.

B) The price at which the option holder can buy or sell the underlying asset.

C) The price at which futures contracts are settled.

D) The price set by the clearinghouse.

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18. What role do speculators play in the derivatives market?

A) They aim to eliminate market risk.

B) They provide liquidity to the market.

C) They exclusively engage in long positions.

D) They are not allowed to participate in derivatives trading.

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19. How do options contracts differ from futures contracts in the derivatives market?

A) Options contracts provide the holder with the obligation to buy or sell the underlying asset, while futures contracts provide the holder with the right but not the obligation.

B) Options contracts are always cash-settled, while futures contracts involve physical delivery of the underlying asset.

C) Options contracts have no expiration date, while futures contracts do.

D) Options contracts are more standardized than futures contracts.

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20. What is a key advantage of using derivatives for risk management?

A) They provide guaranteed returns.

B) They eliminate all forms of market risk.

C) They offer complete control over asset ownership.

D) They allow for the hedging of specific risks.

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21. What are the underlying assets for currency options?

A) Only cryptocurrencies.

B) Only physical currencies.

C) Pairs of currencies, such as EUR/USD or USD/JPY.

D) Precious metals.

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22. What type of assets can serve as the underlying asset for options on futures contracts?

A) Only agricultural commodities.

B) Only individual stocks.

C) Futures contracts themselves.

D) A wide range of assets, including futures contracts on indices, commodities, and more.

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23. In the context of futures contracts, what can serve as underlying assets?

A) Only individual stocks.

B) Only government bonds.

C) A wide range of assets, including indices, commodities, and financial instruments.

D) Only physical real estate.

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24. What are the common underlying assets for commodity futures contracts?

A) Currencies.

B) Cryptocurrencies.

C) Agricultural products, metals, and energy resources.

D) Real estate properties.

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25. What is typically the underlying asset for stock options?

A) Agricultural commodities.

B) Precious metals.

C) Individual stocks.

D) Government bonds.

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26. What is the main advantage of using options as part of an investment portfolio?

A) Guaranteed returns.

B) Liquidity.

C) Tax benefits.

D) Diversification and risk management.

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27. What is the primary motivation for using a protective put option strategy?

A) To generate additional income.

B) To speculate on price movement.

C) To protect against a decline in the value of the underlying asset.

D) To avoid paying option premiums.

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28. What is the primary difference between a covered call and a naked call option strategy?

A) Covered calls involve owning the underlying asset, while naked calls do not.

B) Naked calls are always profitable, while covered calls may result in losses.

C) Covered calls have higher premiums than naked calls.

D) Naked calls can only be used with European options.

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29. What is the primary risk for an options seller, also known as a writer?

A) Market risk.

B) Credit risk.

C) Liquidity risk.

D) Regulatory risk.

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30. What is the primary factor that determines the price of an options contract, often referred to as its premium?

A) The current price of the underlying asset.

B) The issuer of the option contract.

C) The expiration date of the option.

D) The overall market sentiment.

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