Equity Derivatives Certification Free Demo Test 2

Explanation:

Impact cost is the cost that the buyer or seller of stocks incur while executing a transaction due to prevailing liquidity conditions in that counter.

A high impact cost will increase the purchasing price for the buyer and decrease the selling price for the seller.

So a high impact cost is neither beneficial to the buyer nor the seller.

Explanation:

When the markets are very volatile, it could results in losses to the traders. So to safe guard the trading member and the trader, higher initial margin are levied on when volatility is high.

Explanation:

Vega (ν) is a measure of the sensitivity of an option price to changes in market volatility. It is the change of an option premium for a given change in the underlying volatility.

Explanation:

In a derivative exchange, the networth requirement for a clearing member is higher than that of a non-clearing member.

Explanation:

An investor can diversify his portfolio and eliminate major part of price risk i.e. the diversifiable/unsystematic risk but what is left is the non-diversifiable portion or the market risk-called Systematic risk.

Systematic risk can be caused due to unfavourable reasons such as act of nature like a natural disaster, changes in government policy etc.

Explanation:

A long position in a Put Option can be closed out (squared up) only by selling the same Put Option.

Explanation:

When the price of the underlying asset rises in the spot market, its price in the futures market will also rise. So, those who have purchased the futures (long postion) will make a profit.

Explanation:

Returns are related to the risk taken and hence there cannot be a product in the market that gives high return in risk free manner.

Investors should be careful of opportunities that promise spectacular profits or “guaranteed” returns. The deal sounds too good to resist. An individual may claim that unrealistic returns can be realized from “Low-Risk Investment Opportunities”, but one has to keep in mind no investment is risk-free.

Explanation:

Delta for Out of the Money Call and Put option approaches zero as it nears expiry.

Delta for In the Money Call option approaches 1 and delta for In the Money Put option approaches -1 as it nears expiry.

Explanation:

Mark to Market (MTM) is a process by which margins are adjusted on the basis of daily price changes in the markets for underlying assets.

The clearing member who suffers a loss is required to pay the MTM loss amount which is in turn passed on to the clearing member who has made a MTM profit.