CMSA- INTRODUCTION TO DERIVATIVES EXAM QUESTIONS AND ANSWERS WITH COMPLETE VERIFIED SOLUTIONS
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Module
CMSA
Institution
CMSA
CMSA- INTRODUCTION TO DERIVATIVES EXAM QUESTIONS AND ANSWERS WITH COMPLETE VERIFIED SOLUTIONS
Derivative Market
Derivative market is a market developed over time to transfer risk from one party to another.
Derivative Contract
A derivative contract derives its value from an underlying asset su...
Derivative market is a market developed over time to transfer risk from one party to another.
Derivative Contract
A derivative contract derives its value from an underlying asset such as a stock, currency, or commodity,
hence the name derivative.
Components of a Derivative Contract
- An Underlying Asset
- Counterparties with Long /Short Positions
- An Expiration or Maturity Date
Derivative Contract Underlying Assets
A derivative contract will derive its value based on the dynamic value of an underlying asset. Such as:
-Stocks
-Bonds
-Currencies
-Commodities
, -Market Indices
-Interest Rates
Positions in a Derivative Contract
One party is often described as holding a long position while the other holds a short position.
Long Position
Benefits when the value of the underlying asset increases.
Short Position
Benefits when the value of the underlying asset decreases
Derivative Contract Expiration/Maturity Date
This is the date when the contract agreement ends and any differences in the two positions are finally
settled.
Derivative Contract Delivery Type
Physical Delivery vs Cash-Settled
Physical Delivery
Means that at the expiration date, the quantity of the underlying asset specified in the contract will be
delivered to buyer.
Cash-Settled
Means that differences in the counterparties' positions will
be settled in cash rather than delivering the underlying asset.
Where Derivative Contracts Are Traded
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