Derivatives

Derivative Instrument and Market Features practice questions

Derivative Instrument and Market Features is part of CFA Level I Derivatives. Derivatives questions cover forwards, futures, swaps, options, replication logic, payoffs, and risk-transfer mechanics. Use this page to review the controlling ideas, then work through 7 questions with answer explanations and common traps.

Review the worked explanations before moving into adaptive practice. The app version can mix this topic with due reviews and weak related concepts.

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What to know

Identify the rule, formula, or decision criterion before reading the answer choices. CFA Level I distractors often use the right vocabulary with the wrong condition.

How to practice

Work each item under time pressure, then compare your reasoning with the step-by-step explanation and key takeaway.

Review signal

Missed questions should become scheduled reviews when the error comes from a concept gap, formula setup, or answer-choice trap.

Moderate

Derivatives

Derivative Instrument and Market Features

A corporate treasurer enters a customized bilateral contract with a bank to exchange fixed payments for floating payments for five years. The contract is most accurately classified as:

Easy

Derivatives

Derivative Instrument and Market Features

A financial instrument is best described as a derivative if it:

Easy

Derivatives

Derivative Instrument and Market Features

A derivative contract is least likely to permit physical delivery of its underlying when the underlying is:

Moderate

Derivatives

Derivative Instrument and Market Features

A food processing company needs to hedge the purchase of 34,600 bushels of corn for delivery to a specific plant on a date that falls between exchange contract expirations. Relative to hedging with exchange-traded futures, hedging with an over-the-counter forward most likely provides:

Moderate

Derivatives

Derivative Instrument and Market Features

In a centrally cleared derivatives market, the central counterparty (CCP) most likely reduces counterparty credit risk by:

Difficult

Derivatives

Derivative Instrument and Market Features

A derivatives dealer has historically transacted interest rate swaps bilaterally with dozens of counterparties, exchanging collateral under individually negotiated agreements. New regulation now requires all standardized swaps to be centrally cleared. The most likely effect of this change on the dealer is that its:

Moderate

Derivatives

Derivative Instrument and Market Features

A trader buys three equity index futures contracts at a price of 4,250.00. The contract multiplier is USD 50 per index point. At the end of that trading day, the daily settlement price is 4,238.00. As a result of the daily mark to market, the change in the trader's margin account balance is closest to: