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HKSI Paper 9 (Derivatives) English Free Trial
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Question 1 of 10
1. Question
Which of the following statements is true regarding accumulators ?
I. Investors have the obligation to purchase a fixed quantity of underlying assets on every other day within the contract period
II. Investors have the obligation to purchase a fixed quantity of underlying assets on each day within the contract period
III. The purchase price is set at a discount to the initial price
IV. The strike price is set at a discount to the initial price
Correct
Investors in accumulators have the obligation to purchase a fixed quantity of underlying assets on each day within the contract period. The purchase price (“strike price”) is set at a discount to the initial price (determined on the trade date).
Incorrect
Investors in accumulators have the obligation to purchase a fixed quantity of underlying assets on each day within the contract period. The purchase price (“strike price”) is set at a discount to the initial price (determined on the trade date).
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Question 2 of 10
2. Question
Which of the following statements is true regarding OTC warrants?
I. They are structured in a similar way to warrants traded on the exchange
II. There are also others tailored to suit a particular client’s profile and for one-off use
III. They are structured in a similar way to derivatives traded on the exchange
IV. They are structured in the same way to futures traded on the exchange
Correct
OTC warrants are, in most markets, structured in a similar way to warrants traded on the exchange. Along with these generic OTC warrant products, there are also others tailored to suit a particular client’s profile and for one-off use.
Incorrect
OTC warrants are, in most markets, structured in a similar way to warrants traded on the exchange. Along with these generic OTC warrant products, there are also others tailored to suit a particular client’s profile and for one-off use.
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Question 3 of 10
3. Question
Which of the following statements is false regarding ELN ?
I. Put option is related to bearish
II. Call option is related to bearish
III. purchasing a note + selling a call option = bearish
IV. purchasing a note + selling a put option = bullish
Correct
If the investor sells a call option, the ELN is described as “bearish”, while if he sells a put option it is “bullish”:
- bearish ELN = purchasing a note + selling a call option of the linked underlying asset;
- bullish ELN = purchasing a note + selling a put option of the linked underlying
Incorrect
If the investor sells a call option, the ELN is described as “bearish”, while if he sells a put option it is “bullish”:
- bearish ELN = purchasing a note + selling a call option of the linked underlying asset;
- bullish ELN = purchasing a note + selling a put option of the linked underlying
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Question 4 of 10
4. Question
Which of the following statements is false regarding advantages of spread trading?
I. Lower overall risk of the trade
II. The yearly fluctuations of profit and loss for the spread position are slowed down
III. Lower break-even point of the trade
IV. Spread trading can be used to trade volatility of the underlying asset
Correct
Advantages of spread trading:
- Lower cost of trade – the cost of the bought option can be offset by the premium received by the sold
- Lower overall risk of the
- Lower break-even point of the trade such as call bull spread (compared with long call option).
- The day-to-day fluctuations of profit and loss for the spread position are slowed
- Spread trading can be used to trade volatility of the underlying
Incorrect
Advantages of spread trading:
- Lower cost of trade – the cost of the bought option can be offset by the premium received by the sold
- Lower overall risk of the
- Lower break-even point of the trade such as call bull spread (compared with long call option).
- The day-to-day fluctuations of profit and loss for the spread position are slowed
- Spread trading can be used to trade volatility of the underlying
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Question 5 of 10
5. Question
Which of the following statements is true regarding Mini-Hang Seng Index (“Mini-HSI”)?
I. The futures were introduced last
II. The options were introduced first
III. They were designed to meet the needs of retail investors desiring to trade or hedge
IV. They were avoided to meet the needs of retail investors desiring to trade or hedge
Correct
Mini-Hang Seng Index (“Mini-HSI”) futures were introduced in October 2000, while Mini-HSI options were introduced in November 2002. They were designed to meet the needs of retail investors desiring to trade or hedge using the HSI as the underlying instrument.
Incorrect
Mini-Hang Seng Index (“Mini-HSI”) futures were introduced in October 2000, while Mini-HSI options were introduced in November 2002. They were designed to meet the needs of retail investors desiring to trade or hedge using the HSI as the underlying instrument.
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Question 6 of 10
6. Question
Which of the following statements is true regarding warrants?
I. Investors can sell warrants
II. They are like options
III. Investors can buy them
IV. Investors can issue them
Correct
In many ways, a warrant is an option, but with one important distinction: warrants can only be bought – investors cannot short sell or issue warrants.
Incorrect
In many ways, a warrant is an option, but with one important distinction: warrants can only be bought – investors cannot short sell or issue warrants.
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Question 7 of 10
7. Question
Which of the following statements is true regarding average-rate option?
I. Here the purchaser can exercise the option based on a price
II. Here it has a set strike price
III. Here it comes a set strike price
IV. None of the above
Correct
An average-rate option is an option that does not have a set strike price; instead the buyer can exercise the option based on a price that is determined by taking the average of prices over a specified period of time.
Incorrect
An average-rate option is an option that does not have a set strike price; instead the buyer can exercise the option based on a price that is determined by taking the average of prices over a specified period of time.
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Question 8 of 10
8. Question
Which of the following statements is true regarding synthetic position ?
I. Buying a call and going short on a futures contract can create a synthetic short put position
II. Selling a call and going long on a futures contract can create synthetic long put position
III. Buying a call and going short on a futures contract can create a synthetic long put position
IV. Selling a call and going long on a futures contract can create synthetic short put position
Correct
A synthetic long put position can be created by buying a call and going short on a futures contract. A synthetic short put position can be created by selling a call and going long on a futures contract.
Incorrect
A synthetic long put position can be created by buying a call and going short on a futures contract. A synthetic short put position can be created by selling a call and going long on a futures contract.
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Question 9 of 10
9. Question
Which of the following statements is true regarding option price?
I. Increased expiration will increase the price of only call option
II. Increased expiration will increase the price of only put option
III. Increased expiration will increase the price of both call option and put option
IV. All of the above
Correct
Generally speaking, an increase in time to expiration will increase the price of both call and put options as the time value of the option increases.
Incorrect
Generally speaking, an increase in time to expiration will increase the price of both call and put options as the time value of the option increases.
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Question 10 of 10
10. Question
Which of the following statements is true regarding delta option price?
I. The option delta is the rate of change of the option price
II. Delta measures the sensitivity of an option price
III. Both of the above
IV. None of the above
Correct
Delta measures the sensitivity of an option price relative to a change in the underlying asset price. The option delta is the rate of change of the option price compared with the price movement of the underlying asset. The delta of the long call option is equal to N(d1), 0.3936 in the case of the ABC 140 call option in the previous section.
Incorrect
Delta measures the sensitivity of an option price relative to a change in the underlying asset price. The option delta is the rate of change of the option price compared with the price movement of the underlying asset. The delta of the long call option is equal to N(d1), 0.3936 in the case of the ABC 140 call option in the previous section.
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