Challenging Economics Derivatives Test - 55+ MCQs: Economics - Derivatives Quiz: Test Your Understanding with 5 Comprehensive Questions and Answers

1. What does the term 'Backwardation' refer to in futures markets?

A situation where the futures price is higher than the expected future spot price

A measure of the asymmetry in the distribution of futures prices

The impact of dividends on futures pricing

A situation where the futures price is lower than the expected future spot price

2. In options trading, what is the term for the maximum potential loss incurred in a single trade?

Premium

Margin

Commission

Risk Exposure

3. What does the term 'Synthetic Long Stock' refer to in options trading?

A strategy involving the simultaneous purchase of a put option and the sale of a call option

A portfolio that replicates the payoff profile of owning a stock

An options strategy to profit from high implied volatility

A strategy to hedge against interest rate changes

4. What is the primary function of 'Rho' in options pricing?

To measure the rate of change of the option's Delta with respect to changes in the underlying asset's price

To represent the probability of the option expiring in-the-money

To indicate the time decay of the option premium

To measure the sensitivity of the option's price to changes in interest rates

5. What is the term for an options strategy involving the purchase of one call option and the sale of two call options with higher strike prices, all expiring on the same date?

Iron Condor

Bull Call Spread

Bear Call Spread

Strangle

6. What is the term for an options strategy involving the sale of one call option and the sale of one put option with the same expiration date but different strike prices?

Straddle

Strangle

Butterfly Spread

Iron Condor

7. What is the term for an options strategy involving the sale of one call option and the purchase of another with a higher strike price but the same expiration date?

Bull Call Spread

Bear Call Spread

Straddle

Strangle

8. In options trading, what does the term 'Implied Volatility' represent?

The actual volatility experienced by the underlying asset

The volatility of the option's price as derived from the options market

The historical volatility of the underlying asset

The volatility of the option's price as calculated by financial models

9. What does the term 'Theta' refer to in options trading?

The sensitivity of an option's price to changes in the volatility of the underlying asset

The time decay of the option premium

The ratio of the change in the option's price to the change in the price of the underlying asset

The yield generated by rolling over a futures contract

10. What does the term 'Contango' refer to in futures markets?

A situation where the futures price is higher than the expected future spot price

A measure of the asymmetry in the distribution of futures prices

The impact of dividends on futures pricing

A situation where the futures price is lower than the expected future spot price

Economics - Derivatives MCQ Test 5