Derivatives – Futures & Options MCQs

1. A derivative is a financial instrument whose value is derived from:
(A) Bank deposits
(B) Underlying assets like stocks, bonds, or commodities
(C) Government subsidies
(D) Fixed deposits

2. Futures contracts are:
(A) Agreements to buy/sell an asset at a future date at a predetermined price
(B) Deposits in a bank
(C) Insurance policies
(D) Government bonds

3. Options contracts give the holder:
(A) Obligation to buy or sell an asset
(B) Right but not the obligation to buy or sell an asset
(C) Guaranteed profit
(D) Fixed interest income

4. A Call Option gives the right to:
(A) Sell an asset
(B) Buy an asset
(C) Lend money
(D) Borrow money

5. A Put Option gives the right to:
(A) Buy an asset
(B) Sell an asset
(C) Hold an asset forever
(D) Exchange assets

6. Futures contracts are traded:
(A) Over-the-counter (OTC)
(B) On organized exchanges
(C) Only with banks
(D) Only with government approval

7. Options contracts can be:
(A) European or American
(B) National or International
(C) Fixed or Floating
(D) Long or Short only

8. The premium in options trading refers to:
(A) Brokerage fee
(B) Price paid for the option contract
(C) Dividend income
(D) Tax charged

9. Futures contracts are settled:
(A) Only in cash
(B) By delivery or cash settlement
(C) By dividend payout
(D) By interest payment

10. The strike price in options refers to:
(A) The market price of the asset
(B) The fixed price at which option can be exercised
(C) The premium paid
(D) The price of futures contract

11. The buyer of a call option expects the price to:
(A) Decrease
(B) Increase
(C) Remain constant
(D) Collapse

12. The buyer of a put option expects the price to:
(A) Increase
(B) Decrease
(C) Stay constant
(D) Remain volatile

13. Derivatives are used mainly for:
(A) Speculation
(B) Hedging
(C) Arbitrage
(D) All of the above

14. In-the-money option means:
(A) Option has intrinsic value
(B) Option has zero value
(C) Option is expiring worthless
(D) Option is not tradable

15. Out-of-the-money option means:
(A) Option is profitable
(B) Option has no intrinsic value
(C) Option is exercised
(D) Option is settled

16. Futures contracts require:
(A) Initial margin deposit
(B) No margin
(C) Full payment upfront
(D) Only government bond as collateral

17. Mark-to-market in futures refers to:
(A) Daily settlement of gains/losses
(B) Government fixing prices
(C) Adjustment at expiry only
(D) Monthly calculation of profit

18. Hedgers use derivatives to:
(A) Increase risk
(B) Reduce or manage risk
(C) Avoid investments
(D) Speculate only

19. Speculators use derivatives to:
(A) Eliminate risk
(B) Earn profit from price movements
(C) Avoid trading
(D) Invest only in bonds

20. Arbitrage in derivatives means:
(A) Trading simultaneously in different markets to earn risk-free profit
(B) Speculation only
(C) Holding options for long term
(D) Buying government bonds

21. Derivatives are traded in India on:
(A) BSE and NSE
(B) RBI
(C) Banks only
(D) Insurance companies

22. Time value of an option refers to:
(A) Premium – intrinsic value
(B) Intrinsic value – premium
(C) Expiry value
(D) Government value

23. The maximum loss for the buyer of an option is:
(A) Unlimited
(B) Limited to premium paid
(C) Zero
(D) Fixed interest rate

24. The maximum loss for the seller of an option is:
(A) Limited to premium received
(B) Unlimited (in case of call options)
(C) Zero
(D) Fixed by government

25. Futures contracts are:
(A) Standardized
(B) Customized OTC contracts
(C) Insurance policies
(D) Bank deposits

26. Options contracts traded privately without exchanges are called:
(A) Exchange options
(B) OTC options
(C) Futures
(D) Swaps

27. A derivative used to exchange cash flows is:
(A) Option
(B) Swap
(C) Future
(D) Bond

28. The clearing house in derivatives ensures:
(A) Settlement of trades
(B) Delivery of dividends
(C) Allocation of shares
(D) Tax calculation

29. Short selling in futures means:
(A) Buying first and selling later
(B) Selling without owning the asset
(C) Depositing in a bank
(D) Borrowing from government

30. A derivative with no expiration date is:
(A) Stock
(B) Perpetual option
(C) Future contract
(D) Treasury bill

31. The underlying asset in derivatives can be:
(A) Equity shares
(B) Commodities
(C) Currencies
(D) All of the above

32. American options can be exercised:
(A) Only on expiry date
(B) Anytime up to expiry
(C) Never
(D) Only after maturity

33. European options can be exercised:
(A) Only on expiry date
(B) Anytime before expiry
(C) At any future date
(D) Never

34. The settlement type in derivatives can be:
(A) Cash or physical delivery
(B) Dividend payout
(C) Only bank transfer
(D) Only electronic money

35. Margin in derivatives trading acts as:
(A) Security deposit
(B) Guaranteed profit
(C) Bank loan
(D) Fixed return

36. Which derivative has the highest leverage?
(A) Futures
(B) Options
(C) Swaps
(D) Bonds

37. An option expires:
(A) Weekly, monthly, or quarterly
(B) Only yearly
(C) Only after 10 years
(D) Never

38. The notional value in derivatives refers to:
(A) Total value of underlying asset controlled by the contract
(B) Premium paid
(C) Strike price only
(D) Margin deposited

39. Implied volatility in options represents:
(A) Expected future volatility of the underlying asset
(B) Historical volatility
(C) Fixed price
(D) Dividend yield

40. Delta in options measures:
(A) Sensitivity of option price to changes in underlying asset price
(B) Interest rate change
(C) Market liquidity
(D) Tax change

41. A protective put strategy involves:
(A) Buying shares and buying a put option
(B) Selling shares and selling a put option
(C) Buying shares and selling call option
(D) Buying futures only

42. Covered call strategy involves:
(A) Holding shares and selling call option
(B) Holding shares and selling put option
(C) Selling shares and buying call option
(D) Futures spread trading

43. The option writer is:
(A) Buyer of the option
(B) Seller of the option
(C) Government agency
(D) Investor in futures

44. Options trading in India takes place on:
(A) NSE and BSE
(B) RBI
(C) Banks only
(D) IRDA

45. Futures trading eliminates:
(A) Price risk
(B) Credit risk through clearing house
(C) Market volatility
(D) Inflation

46. Long position in futures means:
(A) Agreement to buy in future
(B) Agreement to sell in future
(C) Holding options
(D) Borrowing funds

47. Short position in futures means:
(A) Agreement to sell in future
(B) Agreement to buy in future
(C) Borrowing money
(D) Holding asset forever

48. Options premium consists of:
(A) Intrinsic value + Time value
(B) Strike price + Market price
(C) Notional value + Tax
(D) Dividend + Margin

49. The first exchange to introduce derivatives in India was:
(A) BSE
(B) NSE
(C) RBI
(D) MCX

50. Derivatives markets improve:
(A) Price discovery and risk management
(B) Guaranteed profits
(C) Elimination of all risks
(D) Only government revenue