Commodity Derivatives Certification Free Demo Test 10

Explanation:

In commodities futures, there are two types of settlement price: one is the daily settlement price (DSP) that is known as closing price and the other is the final settlement price (FSP) that is known as Due Date Rate (DDR). The daily settlement price is used to calculate the daily mark-to-market profit or loss.

The Final settlement price is the price used for “delivery default penalty” in case of non-delivery of short sell quantity. There are prescribed methodologies to arrive at delivery default penalty and working out compensation to the buyer in such cases, using FSP.

Explanation:

Volatility is the magnitude of movement in the underlying asset’s price, either up or down. It affects both the Call and Put options in the same way. Higher the volatility of the underlying stock, higher the premium.

Explanation:

Principal risk arises when the buyer/seller has not received the goods/funds but has fulfilled his obligation of making payment/delivery of goods. This is eliminated by having a central counterparty such as clearing corporation

Explanation:

Cash-and-carry arbitrage refers to buying of a physical commodity with borrowed funds and simultaneously selling the futures contract. The physical commodity is delivered upon the expiry of the contract. This opportunity arises when the futures price of the commodity is more than the sum of spot price and the cost of carrying it till the expiry date.

Explanation:

Hedge ratio indicates the number of lots/contracts that the hedger is required to buy or sell in the futures market to cover his risk exposure in the physical / spot market. It helps to neutralize the volatility difference between Spot and Futures.

Explanation:

An ‘In the Money’ (ITM) option would give holder a positive cash flow, if it were exercised immediately. ( A profitable situation)

A put option is said to be ITM when spot price is lower than strike price.

A call option is said to be ITM, when spot price is higher than strike price.

Explanation:

Futures relating to currency rates (currency futures), interest rates (bond futures) and equity prices (stock or equity index futures) are known as financial futures.

Futures on crude oil, metals like Gold, etc, agriculture products, etc are known as Commodity futures.

Explanation:

An option seller cannot demand an exercise of the option. He can only square off his position before the expiry date. Only an option buyer can exercise the option.

Explanation:

A forward contract is an agreement for the delivery of goods or the underlying asset on a specific date in the future at a price agreed on the date of the contract.

Explanation:

The Daily Price Range is 7%.

7% of Rs. 300 is Rs. 21

So the price range will be 300 – 21 and 300 + 21 = Rs. 279 to Rs.321