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CISI Level 3 - Introduction to Investment – Derivatives Exam Questions and Answers
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CISI Level 3 - Introduction to Investment – Derivatives Exam Questions and Answers
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CISI Level 3 - Introduction to Investment– Derivatives Exam Questions and
Answers
What are derivatives used for? - Answer -Hedging
Anticipating Future Cash Flows
Asset Allocation Changes
Arbitrage (simultaneously buying and selling the same asset in two different markets)
How can hedging be achieved? - Answer -By selling futures contracts or buying put
options
Who opened the first derivatives exchange in 1848? - Answer -The CBOT
What is a future? - Answer -A future is an agreement between a buyer and seller. It is
legally binding.
The buyer agrees to pay a pre-specified amount for the delivery of a particular pre-
specified quantity of an asset at a pre-specified date in the future.
The seller agrees to deliver the asset at the future date, in exchange for the pre-
specified amount of money.
A futures contract has two distinct features: - Answer -1. It is exchange traded (e.g. ICE
Europe or The Chicago Mercantile Exchange - CME)
2. It is dealt on standardised terms
Long = - Answer -position taken by the buyer of the future
Short = - Answer -position taken by the seller of the future
Open = - Answer -the initial trade
Close = - Answer -the physical assets underlying most futures that are opened do not
end up being delivered
Covered = - Answer -The futures seller has the underlying asset
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