TYBMS SEM 5 Finance: Commodity & Derivatives Market (Most Imp Objective Questions with Solution)

 Paper/Subject Code: 46006/Finance: Commodity & Derivatives Market

TYBMS SEM 5 

Finance: 

Commodity & Derivatives Market 

(Most Imp Objective Questions with Solution)

Note:

1. All questions are compulsory. (Subject to internal Choice)

2. Figures to the right indicate full marks.

3. Use of non-programmable calculator, is allowed and mobile phones are not allowed.

4. Support your answers with diagrams/illustrations, wherever necessary.

November 2018

Q.1 (A) State weather the following statement are True or False. (Any 8)

1. It is very difficult to take long or short position in the derivatives & compare to other assets.

Ans: False

2. Forwards are over the counter instrument.

Ans: True

3. Expiration day is the last trading day of the contract.

Ans: False

4. The spot price is the future market price of the underlying assets.

Ans: False

5. Contract price = (Price of each security x contract) / Lot size

Ans: False

6. Payoff on a position is likely profit/ loss that would accrue to a market participant with change in the price of the underlying asset at expiry. 

Ans: True

7. Speculators take large, calculated risks as they trade based on anticipated future price movements.

Ans: True

8. In options, execution of contract can be done any time before the expiry of the agreed date.

Ans: True

9. An option premium is the income received by an investor who holds the option contract.

Ans: False

10. The strike price is specified in the option contract and does change over time.

Ans: False

B) Match the following (Any 7)

Column A	Column B
1 No margin requirement	a Unlimited profit
2 Contract size	b Highly risky
3 Settlement of forward contract	c. Lot size
4 Speculation	d Higher option premium
5 Arbitrage	e Cash or delivery
6 Option writer	f Forwards
7 Option holder	g. Directly proportional to spot price
8 Deep in the money	h. Short position
9 Futures contract	i. Operating leverage
10 Financial risk	J. Symmetrical payoffs

Ans: 

Column A	Column B
1 No margin requirement	f Forwards
2 Contract size	c. Lot size
3 Settlement of forward contract	e Cash or delivery
4 Speculation	b Highly risky
5 Arbitrage	g. Directly proportional to spot price
6 Option writer	J. Symmetrical payoffs
7 Option holder	a Unlimited profit
8 Deep in the money	d Higher option premium
9 Futures contract	h. Short position
10 Financial risk	i. Operating leverage

April 2019

Q.1. A. Choose the Correct Alternatives: (Any 8)    (8)

1.________ trading is done on margins.

a. Liquidity 

b. Commodity

c. Commodity futures

d. Futures

2. Trading in derivative market ________ price volatility.

a. Reduces

b. Increases

c. Controls

d. None of these

3. The process of the basis approaching zero is called ________.

a. Convergences 

b. Divergences 

c. Cost of carry

d. . None of these

4. An asset cannot have ________ intrinsic value

a. Negative

b. Positive

c. Neutral

d. All of these

5. A _______ order is valid for the day on which it is entered.

a. IOC

b. COZ

c. Limit

d. Day

6. Put option when ruling spot price (S) is less than exercise price (X) then the option is (SX)

a. In the Money

b. Out of the Money

c. At the Money

d. None of these

7. _______ arrays are calculated separately for separate underlying assets.

a. Risk

b. SPAN

c. PC

d. None of these

8. The amount by which an option is In-the-Money is called its ________.

a. Convergences

b. Intrinsic Value

c. Cost of carry

d. Time Value

9. ________ options can be exercised on the expiration date only. 

a. In the Money option

b. European Option

c. American Option

d. Bermudan Option

10. Black Scholes model for calculating the premium of an option was introduced in _______.

a 1971 

b. 1972

c. 1973

d. 1974

B. State whether the statement is true or false: (Any 7)                (7)

1. Commodities future contracts and the exchange they trade in are governed by the forward contracts (Regulation) Act, 1953

Ans: False

2. Forward contracts usually end with deliveries

Ans: False

3. The arbitrage entails two positions on the same contract in two different markets 

Ans: True

4. Strike price is the pre-determined price at which the asset can be bought or sold.

Ans: True

5. open positions, in option contracts, case to exist after their expiration day 

Ans: True

6. VaR gives multiple risk measure aggregating all positions in spot or derivatives market

Ans: True

7. Maintenance margin is the maximum required to be kept by the contracting party at any given point of time 

Ans: False

8. The pay - out of MTM settlement shall continue to be done on a T + 1 day basis. 

Ans: True

9. In Black Scholes model E Exponential terms

Ans: True

10. The SPAN risk parameter files presents a static snapshot of the market at a point in time.

Ans: True

November 2019

Q.1 (A) State weather the following statement are True or False.            (08)

1 A person buying a futures contract is said to hold a short position.

Ans: False

2 Long futures payoffs are directly related to underlying asset price.

Ans: True

3 Speculation in futures market involves higher risk as compared to holding same

Ans: True

4 position in spot market. A bearish speculator will enter into a long future contract.

Ans: False

5. Premium for an American option will generally be lower as compared to European option

Ans: False

6. Binomial model of option valuation is much more flexible as compared to Black & Scholes model.

Ans: True

7. Cash and carry arbitrage refers to a short position in the cash or underlying market and a short position in futures market.

Ans: False

8 The VAR obtained under the historical-simulation method should be the same as that under the delta normal method.

Ans: False

9 An option premium is the income received by an investor who holds the option contract.

Ans: False

10. Derivatives are mostly primary market instruments.

Ans: False

(B) Match the Column (Any 07):                        (07)

Column A	Column B
1 Hedgers	a measure of the risk of investment
2 Lot size	b Eliminates the risk
3 Time value of option	c. Public private partnership
4 VaR	d Call Option
5 Perfect hedge	e over the counter market
6 Right to Buy	f. Maturity date
7 Arbitrageurs	g. number of units of assets to be delivered
8 Option expires	h Risk Management
9. Forward Contract	i. Riskless profit
10 ICEX	j. Difference between option premium and intrinsic value

 Ans:

Column A	Column B
1 Hedgers	h Risk Management
2 Lot size	g. number of units of assets to be delivered
3 Time value of option	j. Difference between option premium and intrinsic value
4 VaR	a. measure of the risk of investment
5 Perfect hedge	b Eliminates the risk
6 Right to Buy	d Call Option
7 Arbitrageurs	i. Riskless profit
8 Option expires	f. Maturity date
9. Forward Contract	e over the counter market
10 ICEX	c. Public private partnership

November 2022

Q1) A Choose the correct alternative (Any 8 out of 10)                    (8)

1. A contract between a buyer and a seller entered into today regarding a transaction to be fulfilled at a future point in time is called ________. 

A) Fixed contract 

B) Derivative contract

C) Forward contract

D) Future contract

2 Speculators who neither buy nor sell securities in the market but still trade on them are called _________.

A) Wolves

B) Stags

C) Bears

D) Mice

3. An option exercised at the time of maturity it is termed as ________

A) American Option

B) European option

C) Call options

D) South American option 

4. Financial ________ are mainly used for hedging risk.

A) Derivatives 

B) Speculators 

C) Investors 

D) Stacks

5. Elimination of riskless profit opportunities in the futures market is ________.

A) diversification 

B) Arbitrage, 

C) Speculation 

D) Hedging.

6. An option allowing the owner to sell an asset at a future date is a __________.

A) Put option 

B) Call option 

C) Forward option

D) Future contract

7. An option holder is said to take a _________ position.

A) Long 

B) medium

C) short

D) close

8. _______ order is used to limit loss on a trade.

A) Immediate or cancel 

B) Stop loss

C) Daily

D) Formal

9. _________ clearing member is not a trading member. 

A) Self 

B) Professional

C) Amateur

D) Expert

10 For liquid securities, the VaR margins are based on the _________ of the Security. 

A) volatility

B) returns

C) liquidity

D) exposure limit

B State whether True or False (any 7 out of 10)                (7)

1 Both parties have specified obligation under derivative contract.

Ans: True

2 Futures are traded on OTC.

Ans: False

3. If the price of the underlying moves according to the speculators expectation they make small profits.

Ans: False

4. Index options have index as underlying.

Ans: True

5. Derivatives are mostly primary market instruments.

Ans: False

6. Bid price is the price the buyer is willing to pay.

Ans: True

7 Under calendar spread we buy options with different expiry at the same strike price.

Ans: True

8 Higher volatility in price of underlying asset will lead to higher option premium.

Ans: True

9 Monte Carlo Method take a lot of computational power and hence longer tie to estimate results.

Ans: True

10 The National Securities Clearing Corporation Ltd. (NSCCL) assumes the counterparty risk of each member and guarantees financial settlement.

Ans: True

November 2023

Q1. A. Fill in the blank. Answer any 8 out of 10                (8 Marks)

1............... risk is a loss may occur from the failure of another party to perform according to the terms of a contract?

a) Credit

b) Currency 

c) Market 

d) Liquidity

2. Financial derivatives includes?

a) Stock 

b) Bonds 

c) Future

d) None of these

3. By hedging a portfolio; a bank manager

a) Reduces interest rate risk 

b) Increases re investment risk 

c) Increases exchange rate risk 

d) None of these

4. A long contract requires that the investor

a) out his position in the future Sell securities in the future 

b) Buy securities in the future 

c) Hedge in the future 

d) Close

5. Hedging by buying an option

a) Limits gain 

b) Limits losses 

c) Limits gain & losses 

d) Has no limit on losses

6.An option allowing the owner to sell an asset at a future date is a ________

a) Put option

b) Call option

c) Forward option

d) Future contract

7. Composite value of traded stocks group of secondary market is classified as

a) Stock index 

b) Primary index 

c) Stock market index

d) Limited liability index

8. ________ is the minimum amount which must be remained in a margin account?

a) Maintenance margin 

b) Variation margin

c) Initial margin

d) None of these

9. The amount paid for an option is the

a) Strike price

b) Discount 

c) Premium

d) Yield

10. Futures contracts are more successful than interest rate forward contracts because they: 

a) are less liquid 

b) have greater default risk

c) are more liquid

d) have an interest rate tied to the discount rate

Q1. B. True or false. (Any 7)            (7 Marks)

1. Derivative is a contract written on given underlying

Ans: True

2. Equity options are options on individual stocks.

Ans: True

3. Commodity future market in India is regulated by Forward Market Commission.

Ans: False

4. The difference between future and spot price is initial margin.

Ans: False

5. Insurance companies manage risk by risk pooling.

Ans: True

6. Binomial model breaks down the time to expiration into number of time intervals.

Ans: True

7. Option seller has no obligation but only right. 

Ans: False

8. If a speculator is bearish, she will buy security.

Ans: True

9. Lot size is contract size.

Ans: True

10. Expiry date is the first date on which contract is traded.

Ans: False

November 2024

Q1) A Choose the correct alternative (Any 8 out of 10)                    (8)

1) ________ market helps to trade the goods on future basis.

a) Derivatives

b) Commodities

c) Stock

d) Capital 

2) _______ helps trade in two different markets.

a) Day

b) Speculators

c) Hedgers

d) Arbitrageurs

3) _______ is a place where the buying and selling of securities takes place

a) Market

b) Exchange

c) Trading Ring

d) Warehouse

4) Buying and selling of shares is called as _______.

a) Commodities

b) Derivatives

c) Trading

d) Warrants

5) The investor who invest in the market to reduce the risk are called as ________.

a) Hedgers

b) Arbitrageurs

c) Speculators

d) Traders

6) Derivatives are based on ________ amount.

a) Notional

b) Actual

c) Trading

d) Specific

7) __________ are options dates with 1 year and above maturity.

a) LEAPS

b) Warrants

c) Futures

d) Forwards

8) Call options means an option to _______

a) Buy

b) Sell

c) Trade

d) Encounter

9) Arbitrageur deals only when there is a _______

a) Loss

b) Profit

c) Benefit

d) Growth

10) Futures are _______ in nature

a) Customized

b) Valuable

c) Safer

d) Standardized

Q.1. [B] Match the column:- (Any 7)                    [07]

Column A	Column B
1 Forwards	A Yet to expire
2 Futures	B Regulatory Body
3 Baskets	C Market Risk
4 Leaps	D Indian Commodity exchange
5 SPAN	E Multiple securities
6 Outstanding Interest	F Risky
7 MCX	G Counter Party Risk
8 CME	H Equity schemes
9 OTC	I Margin System
10 FMC	J International commodity exchange

Ans:

Column A	Column B
1 Forwards	G Counter Party Risk
2 Futures	C Market Risk
3 Baskets	E Multiple securities
4 Leaps	H Equity schemes
5 SPAN	I Margin System
6 Outstanding Interest	A Yet to expire
7 MCX	D Indian Commodity exchange
8 CME	J International commodity exchange
9 OTC	F Risky
10 FMC	B Regulatory Body

April 2025

Q. 1: A: Multiple choice questions: (Any 8)                (08)

1. _________ Trading in food and other agricultural products, metals and energy products is not a new phenomenon.

A) Commodity

B) Equity

C) Canada

D) Futures

2. _________ Commodities are classified as, agricultural products such as corn, wheat etc.

A) Hard

B) soft

C) complex

D) future

3. The ________ is a central place where market participant's trade standardized futures contracts. 

A) Exchange

B) hedging

C) brokers

D) scalpers.

4. Current size of a lot of bank Nifty is of _________ share.

A) 50

B) 15

C) 30

D) 35

5. For liquid securities, the VAR margins are based on the ________ of the Security.

A) volatility

B) returns

C) liquidity

D) exposure limit

6. MTM stands for _________.

A) Mark-to-market

B) Money to market

C) Market to Market

D) Major-to Market

7. If the contract size is 100 selling price is 720 buying price is 800 there will be a ________

A) Loss 8000

B) profit 8000

C) loss of 80

D) profit of 80

8. CBOT stands for ________

A) Chicago board of trade

B) China board of trade

C) Chicago

D) Chicago bench of trade

9. _______ Order is used to limit loss on a trade.

A) Immediate or cancel

B) Stop loss

C) Daily

D) Formal

10. Elimination of riskless profit opportunities in the futures market is _________

A) Diversification.

B) Arbitrage.

C) Speculation

D) Hedging.

Q.1 (B) State whether the statement is true or false: (Any 7)                    (07)

1. Commodities markets involve the trading of tangible goods such as agricultural products, metals, and energy resources.

Ans: True

2. The derivatives market originated as a means for managing agricultural commodity price risk.

Ans: True

3. Commodities traded in India include agricultural products like wheat and rice, metals like gold and silver, and energy products like crude oil and natural gas.

Ans: True

4. The structure of commodities markets in India includes both cash and derivative segments.

Ans: True

5. Participants in commodities markets include producers, consumers, traders, and speculators.

Ans: True

6. Derivatives markets originated as a means for managing risk in agricultural commodity prices.

Ans: True

7. Elements of a derivative contract include the underlying asset, contract size, expiration date, and contract price.

Ans: True

8. Factors driving growth in the derivatives market include increased financial innovation and the need for risk management tools.

Ans: True

9. Future price refers to Spot price + cost of carry.

Ans: True

10. Binomial model breaks down the time to expiration into number of time intervals.

Ans: True