Derivatives

Forward Commitment and Contingent Claim Features and Instruments practice questions

Forward Commitment and Contingent Claim Features and Instruments 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 8 questions with answer explanations and common traps.

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

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Easy

Derivatives

Forward Commitment and Contingent Claim Features and Instruments

A contingent claim differs from a forward commitment most likely in that a contingent claim:

Moderate

Derivatives

Forward Commitment and Contingent Claim Features and Instruments

An interest rate swap in which one party pays a fixed rate and receives a floating rate on several future settlement dates is most accurately described as economically equivalent to:

Moderate

Derivatives

Forward Commitment and Contingent Claim Features and Instruments

A European put option with an exercise price of USD 75 is trading while its underlying stock trades at USD 82. The option is best described as:

Moderate

Derivatives

Forward Commitment and Contingent Claim Features and Instruments

Holding the underlying price, volatility, and other pricing inputs constant, as a European option approaches its expiration date, the option's time value most likely:

Moderate

Derivatives

Forward Commitment and Contingent Claim Features and Instruments

An investor with no existing exposure to a corporate issuer sells credit protection on that issuer using a single-name credit default swap. The investor's position is best described as:

Difficult

Derivatives

Forward Commitment and Contingent Claim Features and Instruments

A company pays a floating market reference rate plus a spread on USD 200 million of debt that resets quarterly. The treasurer wants to lock in a known interest cost for the next five years, insists on zero initial cost, and is willing to give up any benefit from falling rates. The most appropriate instrument is:

Moderate

Derivatives

Forward Commitment and Contingent Claim Features and Instruments

A trader writes a call option with an exercise price of USD 45 and receives a premium of USD 3.00 per share. At expiration, the underlying stock trades at USD 51. The writer's profit per share is closest to:

Very Difficult

Derivatives

Forward Commitment and Contingent Claim Features and Instruments

An investor buys 100 shares of a stock at USD 62.00 per share and simultaneously buys one put option covering 100 shares with an exercise price of USD 60.00, paying a premium of USD 2.50 per share. At the option's expiration, the stock trades at USD 54.00. The investor's total profit per share on the combined position is closest to: