M6A - Set 2
1)What is the difference between an American option and a European option?
A) American option permits the owner to exercise at any time before or at expiration,
while a European option can be exercised only at expiration.
(B) European option permits the owner to exercise at any time before or at expiration,
while an American option can be exercised only at expiration.
(C) There is no difference
(D) None of the above
2)The type of structured product that combine financial instruments such as
equity, fixed income and derivatives to achieve specific risk/return and/or
cost/savings profiles that may not be otherwise achievable in the marketplace.
(A) structured notes
(B) structured funds
(C) structured exchange - traded funds
(D) structured investment - linked policies
3)What is referred to as the potential profit or loss from the immediate exercise
of an option?
(A) Moneyness
(B) Yield return
(C) Positive return
(D) None of the above
4) Which of the following statement is TRUE regarding risks in a structured
product?
(A) The risk is potentially higher than a standardized product due to the complexity of
the product.
(B) The risk is potentially lower than a standardized product due to the complexity of
the product.
(C) The risk is potentially higher than a standardized product due to the volatility of
the product.
(D) None of the above
5) Which personnel works closely with the middle office manager on risks limits,
mark to market process and other system requirements?
(A) Trading manager
(B) Middle office manager
(C) Operations manager
(D) Tax officer
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6) This structure attempts to provide yield enhancement to the investor where the
cash settlement amount is linked to the market price of the underlying asset.
(A) yield enhanced securities
(B) basket warrant
(C) GDRs
(D) ADRs
7) Which of the following is a factor that would affect the option price?
(A) a higher stock price
(B) cash flows in the form of dividends
(C) a change in interest rates
(D) All of the above
8) What is a structured product that is traded real - time like shares, and managed
according to techniques aimed at pursuing returns?
(A) Structured exchange - traded funds
(B) Structured investment - linked policies
(C) Structured notes
(D) Structured funds
9) It is the price paid for the call or put option.
(A) premium
(B) exercise price
(C) opt out price
(D) None of the above
10) These are offshore derivative instruments which are not registered with the
securities regulator of its underlying assets' jurisdiction and are not listed.
(A) Structured debture notes
(B) Participatory notes
(C) Exchange - traded notes
(D) Index - linked notes
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11) With numerous possible combinations of underlying financial instruments, a
structured product has no fixed form. What risk is applicable when the benefits
and liabilities of the structured product are highly dependent on this?
(A) structure
(B) credit
(C) foreign exchange
(D) early termination
12) A feature of a warrant that states the number needed to be exercised to buy or
sell one unit of the underlying security.
(A) exercise price
(B) conversion ratio
(C) issue price
(D) size of issue
13) What kind of structured fund has limited number of shares?
(A) Closed - ended fund
(B) Open - ended fund
(C) Guarantee fund
(D) Preservation fund
14) Which of the following are allowed parameters for pricing of options?
(A) Underlying asset price, exercise price,time to expiry, volatility, and interest rates
(B) Underlying asset price, exercise price,time to expiry, and volatility
(C) Underlying asset price, exercise price,time to expiry, and variability of the price of
the underlying asset.
(D) None of the above
15) If a futures contract qualifies for hedging, what will be given to that contract?
(A) deferral accounting treatment
(B) discount
(C) high interest rates
(D) low interest rates
16) What is referred to as an open option position without combining it with an
offsetting position in other securities?
(A) Uncovered or naked position
(B) Uncombined option
(C) Short position
(D) None of the above
3
17) Structured warrants on stocks are subject to adjustments to take into account
any corporate action arising from the underlying stock, Which of the following is
considered a corporate action?
(A) rights issue
(B) bonus issue
(C) special dividends or consolidation.
(D) All of the above
18) Which of the following is NOT a feature of structured funds?
(A) New shares are issued only at the time of launching the fund.
(B) Funds with fixed maturity schemes are designed with early termination.
(C) An investor can trade shares of a close - ended fund in a stock exchange if it is listed.
(D) All of the above
19) Some issuers may provide liquidity by making a market for the products that
they sell, but: -
(A) this is generally limited to small amounts.
(B) this is generally limited to preferred clients.
(C) this is generally limited to the type of product.
(D) this is generally limited to the term applied to the contract.
20)Which component of a structured product is usually a fixed income instrument
such as a bond?
(A) Principal
(B) Return
(C)Guarantee
(D) Premium
21) In interpreting the trading name of a structured warrant, from the example '
ABC DEF ePW 120322', what does 'ABC' stand for?
(A) underlying's name
(B) type of warrant
(C) exercise style
(D) financial institution
4
22) In this structured product, the portfolio is rebalanced when the amount invested
in risky assets falls outside the band and the adjustment is made to move the risky
assets multiple back to the starting point of four times.
(A) dynamic proportion portfolio insurance
(B) constant proportion portfolio insurance
(C) embedded zero coupon
(D) inverse floater note
23) What led to the formation of the options exchange?
(A) Lack of liquidity and a proper market
(B) Dealers and rising stock price
(C) Standardization
(D) None of the above
24) When do we use the 'no - arbitrage pricing principle'?
(A) When there would be no arbitrage opportunities available
(B) When prices are different from the expected prices.
(C) When buyers gain
(D) When sellers lose
25) On settlement of issues, what do you call the exercise wherein the holder is
required to submit an exercise notice with the cash payment to the warrant agent?
(A) Physical settlement
(B) Cash settlement
(C) Warrant exercise
(D) None of the above
26) An example of this risk is the failure to make timely investment or redemption
on financial instruments due to cumbersome internal procedures.
(A) operational
(B) mis - selling
(C) liquidity
(D) legal
27) Some of the underlying instruments purchased are not denominated in the same
currency s the structured market. The investment returns will be affected
depending on the when transactions are carried out.
(A) exchange rates
(B) interest rates
(C) fixed rate
(D) floating rate
5
28) What does DMM stand for?
(A) designated market - marketer
(B) direct master - marketer
(C) designated match - maker
(D) designated market manager
29) What best describes an Option?
(A) A choice
(B) A right
(C) Both A and B
(D) None of the above
30) What is the source of the market risk if the return component is the currency
option premium?
(A) foreign exchange
(B) early termination
(C) mis - selling
(D) liquidity
31) In interpreting the trading name of a structured warrant, from the example '
ABC DEF ePW 120322', what does 'PW' stand for?
(A) underlying's name
(B) type of warrant
(C) exercise style
(D) financial institution
32) What is an Exchange - traded note or ETN?
(A) is a senior, unsecured, unsubordinated debt security issued by an underwriting bank.
(B) is a senior, secured, subordinated debt security issued by any bank.
(C) is a senior, unsecured, unsubordinated debt security issued by the investor.
(D) None of the above
33) For structured funds where the monies received are invested in financial assets
and used as collateral for providing guarantees to companies, restrictions are
normally included in the trust deed on the management of the assets. Who places
this restriction?
(A) issuers
(B) buyers
(C) seller
(D) None of the above
6
34) What is a contract that allows for the sale and purchase of a pre - determined
amount of foreign currency a a fixed exchange rate on or before a specified date?
(A) Currency feature
(B) Currency option
(C) Cash asset contract
(D) None of the above
35) When was the first stock index options traded on the CBOE?
(A) 1982
(B) 1983
(C) 1984
(D) 1985
36) What are the main components of a structured product?
(A) principal and return sheet
(B) principal and return risk
(C) principal and return component
(D) None of the above
37) In this warrant, the settlement and trading currency is different from the
underlying's currency.
(A) index warrants
(B) currency translated warrants
(C) basket warrants
(D) None of the above
38) Among the option Greeks, this is the second - order relationship between option
price and its underlying asset price.
(A) Delta
(B) Gamma
(C) Theta
(D) Vega
39) The term used when it consists of a long call and long put at the same strike
price.
(A) straddle
(B) strangle
(C) strobble
(D) None of the above
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40) This type of structured product are debt instruments structured to link possible
coupon payments to the performance of other underlying instruments.
(A) structured notes
(B) structured funds
(C) structured exchange - traded funds
(D) structured investment - linked policies
41) A type of debt instrument that is not secured by physical asset or collateral,
backed by general credit rather than by specified assets.
(A) structured funds
(B) corporate bonds
(C) debentures
(D) None of the above
42) It is a notice circular advertisement or other invitation offering to public for
subscription or purchase any shares or debentures of a company.
(A) debenture
(B) prospectus
(C) special purpose vehicle
(D) None of the above
43) The initial coupon of this structured note is much higher than a bank deposit
rate.
(A) inverse floater note
(B) variable maturity - multi callable range accrual note
(C) embedded zero coupon
(D) range accrual note
44) Among the option Greeks, this is the first - order relationship between the
option price and the underlying price.
(A) Delta
(B) Gamma
(C) Theta
(D) Vega
45) are essential to ensure that risks associated with futures are well
managed.
(A) proper accounting systems and procedures
(B) clearing members and their customers
(C) cash settlement
(D) None of the above
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46) The term used when it consists of a long call and long put at a different strike
price.
(A) straddle
(B) strangle
(C) strobble
(D) None of the above
47) Which of the following has the downside protection of the fixed income and
upside participation of the call option on an underlying equity security?
(A) Structured Note
(B) Equity Linked Note
(C) Covered Call
(D) Straddle
48) This type of notes are appealing under low interest rate environments as they
offer the prospect a return greater than money market instruments.
(A) inverse floater note
(B) embedded zero coupon
(C) variable maturity - multi callable range accrual note
(D) range accrual note
49) This structured product are essentially insurance products which provide a
combination of insurance coverage and structured investment returns.
(A) structured exchange - traded funds
(B) structured investment - linked policies
(C) structured notes
(D) structured funds
50) Which of the following statement is TRUE?
A) short options are vehicles to profit from stable prices,time decay and falling volatility.
B) long options will bring profits when prices trend heavily over a long period of time.
(C) Both A and B
(D) None of the above
51) Which of the following is a common feature of most structured product whereby
an independent trustee is appointed to hold the assets and underlying financial
instruments purchased?
(A) Fallback agreement
(B) Trust contract
(C) Risk - free arrangement
(D) Trust arrangement
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52) Which of the following is known as the simultaneous purchase of the underlying
asset with the sale of a call option?
(A) Uncovered call position
(B) Covered call position
(C) Covered put position
(D) None of the above
53) A structured product is considered a complex investment product which may
not be easily understood by some investors. Before participating in this product, the
investor should:
(A) understand the suitability of the product through assessing his risk appetite.
(B) understand liquidity needs and associated risks.
(C) understand the returns of the product.
(D) All of the above.
54) What is the term used to describe the legal form in which a structured product is
sold? This would include structured notes, funds and investment - linked policies.
(A) wrapper
(B) sales contract
(C) proof of purchase
(D) None of the above
55) What differentiates ETNs or exchange - traded notes as a structured product?
(A) its tradability feature which provides greater liquidity for investors.
(B) risk is related to the credit quality of issuer.
(C) Both A and B
(D) None of the above.
56) This refers to the investors preparedness to keep the investment amount in the
product until its maturity.
(A) risk appetite of investor
(B) liquidity needs
(C) risks of the product
(D) returns of the product
57) What securities are backed by a pool of assets such as non - mortgage loans,
mortgage loans or bonds? Chapter 13 Section1.1
(A) Asset - backed security
(B) Collateralised Debt Obligations
(C) Mortgage - backed security
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58) This risk is generally applicable to the principal component of the fund and
occurs when the pool of funds received from investors by the issuer is unevenly
distributed over a small number of assets type.
(A) concentration
(B) operational
(C) mis - selling
(D) liquidity
59) Which of the following is a structured fixed income product where the coupon is
linked to the performance of reference interest rate index, such as the London
Interbank Offer Rate?
(A) Inverse floater note
(B) Range accrual note
(C) Variable maturity - multi callable range accrual note
(D) Embedded zero coupon
60) What is the most common pricing model that is used to price an option?
(A) Black - Scholes model
(B) Cox - Ross - Rubinstein's binomial model
(C) Garman - Kohlhagen model
(D) Biger and Hull model
61) Which of the following is a debt instrument that is structured to link possible
coupon payments , or the market value of the notes is referenced to the performance
of other underlying financial instruments?
(A) Structured funds
(B) Structured notes
(C) Corporate bonds
(D) None of the above
62) What is a collective investment scheme that can issue and redeem units at any
time? Chapter 13 Section1.1
(A) Closed - ended fund
(B) Open - ended fund
(C) Guarantee fund
(D) Preservation fund
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63) What is the process of combining underlying securities like shares, bonds, notes,
warrants, indices, asset classes with derivatives? Chapter 13 Section1.1
(A) Structuring
(B) Hedging
(C) Combination marketing
(D) Financial engineering
64) This refers to the investor's ability and willingness to take risk.
(A) risk appetite of investor
(B) liquidity needs
(C) risks of the product
(D) returns of the product
65) Which option Greek denotes the relationship or sensitivity of the option price to
volatility?
(A) Delta
(B) Gamma
(C) Theta
(D) Vega
66) What is referred to as the 'difference between the market price of the option and
its intrinsic value?
(A) Time value
(B) speculative value
(C) Both A and B
(D) None of the above
67) Which measure is placed by regulators and security exchanges to mitigate
market disruption risk?
(A) circuit breakers
(B) shock absorbers
(C) price limits
(D) All of the above
68) Which of the following is the most common of fixed income instruments that
have embedded call options on the underlying equity securities?
(A) Global depository receipts
(B) Convertible bonds
(C) American depository receipts
(D) None of the above
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69) These officers will be responsible for the accounting procedures for local tax and
the tax authority requirements of the country.
(A) Finance officer
(B) Trading manager
(C) Middle office manager
(D) Operations manager
70) He is responsible for setting limits control and profit - loss reporting.
(A) Trading manager
(B) Middle office manager
(C) Operations manager
(D) Tax officer
71) The prospectus and product highlights sheet are important documents to ensure
proper risk disclosure, this type of market risk happens when the risks of the
product were not adequately disclosed by the issuer.
(A) mis - selling
(B) liquidity
(C) legal
(D) early termination
72) A derivative that gives the investor an option to buy or sell a stated number of
shares of an underlying instrument at a specified price within a specified time
period.
(A) baskets
(B) leaps (C)
warrant (D)
swaptions
73) These notes are unlisted corporate fixed income securities offered on an original
issue basis directly to investors or through a financial intermediary.
(A)exchange - traded notes
(B)access notes
(C)Index - linked notes
(D)participatory notes
74) These warrants are settled on exercise via cash payment.
(A) index warrants
(B) currency translated warrants
(C) basket warrants
(D) None of the above
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75) This product can be structured with either an average periodic return and a
specified participation rate or a periodic cap.
(A) Index - linked notes
(B) participatory notes
(C) access notes
(D) exchange - traded notes
76) This risk is usually characterized by declines which cause widespread panic and
results in disorderly market conditions.
(A) market disruption
(B) concentration
(C) operational
(D) mis - selling
77) The use of a long position in a call option and a fixed income instrument would
result in a .
(A) Equity linked note
(B) Breakeven point
(C) Covered call
(D) Structured bank note
78) This refers to the investors need to understand the scenarios that can cause the
loss of their principal investment.
(A) risk appetite of investor
(B) liquidity needs
(C) risks of the product
(D) returns of the product
79) This option gives the holder the right to buy the underlying from the writer at
the strike price on or before a specified date.
(A) Call Option
(B) Put Option
(C) In Option
(D) Out Option
80) This warrant feature allows you to trade more warrants than the underlying
asset for the same investment outlay.
(A) gearing
(B) hoarding
(C) hedging
(D) swapping
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81) This personnel provides the necessary system support, confirmation procedures,
settlement requirements and monitoring of brokerage fees.
(A) Trading manager
(B) Middle office manager
(C) Operations manager
(D) Tax officer
82) Which of the following is/are considered a Trading manager's responsibility?
(A) set the transaction and position limits
(B) conduct weekly review of trading activity
(C) reconcile trading profit and loss reports with investors.
(D) All of the above
83) What is the difference a structured note from a structured deposit?
(A) structured deposits are not debentures
(B) structured deposits are not issued thru banks.
(C) Both A and B
(D) None of the above
84) Which of the following is considered the back office's responsibility?
(A) verify daily the accuracy of all futures transactions.
(B) review weekly al trade tickets for completeness..
(C) verify daily that outstanding positions have exceeded authorised positions and
exchange limits.
(D) All of the above
85) What component is primarily affected when a structured product is exposed to
the market risk of derivatives instruments?
(A) Principal component
(B) Return component
(C) Both A and B
(D) None of the above
86) This component of structured product comprises of other underlying financial
instruments such as securities, securities indices, debt instruments, derivative
instruments relating to securities, credit, foreign currency and commodities.
(A) principal
(B) return
(C) guarantee
(D) premium
15
87) Where did the idea of standardization by having fixed strike prices and fixed
expiration dates came from?
(A)Chicago Board Option Exchange
(B) OTC dealers
(C) Chicago Board of Trade
(D) None of the above
88) Which of the following statement is/are true for a structured product?
A) It allows risk - return customization through a combination of 2 or more
underlying financial instruments.
(B) It is generally packages investment strategies, put together by an issuer which is
usually a financial institution.
(C) It may appear in more complex forms and has no fixed combinations of the
underlying financial instruments.
(D) All of the above
89) Which of the following is a restriction that is usually put in place for the selling
of structured products to retail investors.
A) Sales of the products can only be carried out after advice from qualified
representatives providing financial advisory services.
B) Financial representatives intending to sell the product must have undergone adequate
training but not necessarily have the competencies.
(C) Both A and B
(D) None of the above
90) Risk is defined as the possibility of loss in an investment. This includes the
possibility of losing some or the entire principal amount invested. The greater the
potential returns sought, the greater the risk the investor needs to assume. What is
the rationale for this relationship?
(A) Investors are compensated for taking additional risks.
(B) Investors are assured of profit in the long run
(C) Investors are assured of profit in the short run.
(D) Investors will always profit upon maturity of the product.
91) The option buyer is the owner or holder of the option while the option seller is
the writer of the option, who has the obligation to fulfill the contractual terms
should the buyer exercise the option?
(A) option buyer
(B) option seller
(C) Both A and B
(D) None of the above
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92) The Put - Call parity formula only applies to what style of option?
(A) American
(B) European
(C) Both A and B
(D) None of the above
93) Also known as exercise price, this is the price paid to acquire the underlying or
price received to sell the underlying.
(A) Stock price
(B) Strike price
(C) Option price
(D) None of the above
94) The option Greek that shows the sensitivity of the option price to the time to
expiration.
(A) Delta
(B) Gamma
(C) Theta
(D) Vega
95) In interpreting the trading name of a structured warrant, from the example '
ABC DEF ePW 120322', what does 'e' stand for?
(A) exercise style
(B) expiry
(C) expert
(D) ending
96) The is a path - dependent contract where the payoff is calculated from the
mean of the values at certain dates. A contract is called path - dependent when the
payoff does not only depend on the terminal price of the underlying asset at
maturity.
(A) Asian option/warrant
(B) Swaption
(C) Automatic exercise feature
(D) None of the above
97) Which statement is true for DMMs?
(A) they are committed to make a market for their structured warrants during normal
trading hours.
(B) they provide liquidity by posting bid/offer quotations for the structured warrants.
(C) quotes both a buy and a sell price in a financial instrument or commodity held in
inventory
(D) All of the above
17
98) This risk refers to the likelihood of an event of any kind having a direct impact
on another.
(A) credit
(B) structure
(C) correlation
(D) foreign exchange
99) Which of the following can be considered as an option?
(A) buying a stock
(B) insurance policy
(C) buying a house
(D) All of the above
100) As a structured product involves the combination of two or more financial
instruments, the risk profile is often than a standardized financial product.
(A) more complicated
(B) more of a liability
(C) less profitable
(D) None of the above
101) The risk involved when the structured product or the underlying financial
instruments involve a credit product.
(A) credit
(B) foreign exchange
(C) early termination
(D) mis - selling
102) A warrant feature which tells the price at which the holder is able to buy or sell
the underlying instrument.
(A) exercise price
(B) issue price
(C) warrant price
(D) none of the above
103) Which of the following are sources of market risk?
(A) changes in interest rates
(B) inflation
(C) recession and political instability
(D) All of the above
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104) In warrants, what is the difference between the warrant price and intrinsic
value?
(A) premium
(B) upgrade
(C) share price
(D) percentage
105) How is the value of derivatives products, such as options, forwards, swaps and
CDOs/CDS determined? (Chapter 13 , section 1.1)
(A) By the prices of the underlying securities.
(B) By the interest rates of the underlying securities.
(C) Both A and B
(D) None of the above
106) Which of the following is a specialty option or non - standard option?
(A) Average price or rate option
(B) Deferred strike or strike price option
(C) Dual currency option and Lookback option
(D) All of the above
107 ) A structured product is created to meet specific needs that cannot be met from
the standardized financial instruments available in the market, it can also be used :
-
(A) as an alternative to a direct investment.
( B) as part of the asset allocation process to reduce risk exposure of a portfolio.
(C) to profit from the current market trend.
(D) All of the above.
108 ) For over the counter (OTC) options, independent sources of should be
used for daily mark - to - market purposes.
(A) most recently available prices
(B) contracts
(C) interest rates
(D) All of the above
109) The term 'in - the - money' means it yields a return when exercised.
(A) positive
(B) negative
(C) break even
(D) None of the above
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110) Which of the following differentiates ETNs (exchange traded notes) from ETFs
(exchange traded funds)?
(A) Absence of tracking error in ETNs
(B) Risk profile and design features
(C) Tax treatment
(D) All of the above
111) The legal officer that will provide input with regards to local banking laws and
regulations.
(A) Compliance/Legal officer
(B) Finance officer
(C) Trading manager
(D) Middle office manager
112) This risk can be avoided if the agreement drafted on the structured product
states that the investor have the first right to the instruments before the other
creditors of the issuer.
(A) Legal
(B) Early termination
(C) Mis - selling
(D) Liquidity
113) This structured product can be offered as a note where the investment can be
dynamically allocated between risk free assets and risky assets.
(A) inverse floater note
(B) embedded zero coupon
(C) constant proportion portfolio insurance
(D) dynamic proportion portfolio insurance
114) On principal risk, what is the instance wherein the issuer will not be able to
fulfill its liabilities?
(A) bankruptcy
(B) lack of liquidity
(C) default by bond issuer
(D) All of the above
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115) The principal preservation feature of a structured product is differentiated
from principal guarantee when: -
(A) the investor's initial investment is guaranteed by certain collaterals.
(B) the investor's initial investment is not guaranteed by certain collaterals.
(C) the investor's overall investment is guaranteed by certain collaterals.
(D) the investor's overall investment is not guaranteed by certain collaterals.
116) In interpreting the trading name of a structured warrant, from the example '
ABC DEF ePW 120322', what does 'DEF' stand for?
(A) issuer
(B) underlying's name
(C) type of warrant
(D) exercise style
117) these investment products provide local investors an avenue to invest and trade
in shares of non - locally listed companies. They are negotiable certificates of
ownership which represent a claim to a certain number of foreign shares.
(A) global depository receipts
(B) convertible bonds
(C) american depository receipts
(D) None of the above
118) What spread is used to express a somewhat bullish view on the market by
buying a call with a lower strike price and selling a call with a higher strike price?
(A) Bear spread
(B) Low spread
(C) High spread
(D) None of the above
119) This option gives the holder the right to receive the strike price upon delivery
of the underlying to the writer on or before a specified time.
(A) Call Option
(B) Put Option
(C) In Option
(D) Out Option
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120) What risk is manifested when there is a mismatch of maturity date between the
structured product and the underlying financial instrument?
(A) foreign exchange
(B) early termination
(C) mis - selling
(D) liquidity
121) What kind of fund combines financial instruments, including equity, fixed
income and derivatives to achieve specific risk/return and cost/savings profiles that
may not be otherwise achievable in the marketplace? (Chapter 13, section 1.1)
(A) Hedge fund
(B) Structured fund
(C) Trust fund
(D) None of the above
122) What is the similarity between a structured note and a structured deposit?
(A) both embed a derivative component
(B) both are issued by banks
(C) both requires guidelines to be observed by all investors.
(D) None of the above.
123) Structures warrants in singapore are options, meaning that they
can only be exercised on expiry date.
(A) European - style
(B) American - style
(C) Both A and B
(D) None of the above
124) This risk is a result of the lack of marketability, wherein market disruption
may the primary reason for the sudden lack of buyers or sellers for certain financial
instruments.
(A) foreign exchange
(B) early termination
(C) mis - selling
(D) liquidity
125) Which of the following statements is/are true on structured notes?
(A) They must be marked - to - market periodically during the life of the note.
(B) It is a composite of various flow products.
(C) The product's mark - to - market value must be obtained from an independent source.
(D) All of the above
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