Forwards
Is a forward contract normally traded on an organized exchange or OTC?
OTC
Are futures contracts generally standardized or customized?
Standardized
Which option gives the holder the right to buy?
Call
What is exchanged in a swap?
Cash Flows
A company locks in an exchange rate of ₹85/$ for a future payment. At the time of settlement, the market rate is ₹80/$. Has the company benefited or lost from locking in the rate, and why?
It has given up the benefit of the lower market rate, because it is still committed to the previously agreed ₹85/$ rate.
A company agrees today to buy USD at a fixed exchange rate three months from now. What derivative is this?
Forwards
Does the buyer of an option have an obligation to exercise it?
A company wants to exchange floating-rate exposure for fixed-rate exposure. Which derivative could it use?
Interest-rate swap
An investor wants the ability to buy an asset at a predetermined price but doesn't want to be forced to buy it. What instrument provides this right?
Call Option
What does 'mark-to-market' mean in futures?
Gains and losses are generally settled daily based on changes in the contract's market value.
A company knows it must purchase $1 million in three months and wants to lock in today's agreed exchange rate. Which derivative would directly fit this requirement?
Forwards
Company A earns most of its revenue in INR but has obligations in USD. Company B earns mainly in USD but has obligations in INR. They agree to exchange principal and interest payments in their respective currencies. What type of derivative arrangement are they using?
Currency swap