Q. Consider the following types of Derivatives traded in the Forward Market of the Secondary Capital Market:
DerivativeCore Feature
1. ForwardCustomized contract with settlement at a future pre-agreed price.
2. FutureAgreement to buy or sell an asset at a certain price at a certain time in the future.
3. OptionGives the buyer the right, but not the obligation, to buy or sell an underlying asset.
4. SwapContracts to exchange a commodity or security with another at a pre-determined ratio & date.
How many of the above pairs are correctly matched?
Answer: C
Notes:
Explanation:
- Forward: Correct. It is a customized contract with settlement taking place at a pre-agreed price on a specific future date.
- Future: Correct. It is an agreement between two parties to buy or sell an asset at a certain time and price in the future.
- Option: Correct. An Option gives the right, but not the obligation, to buy (Call) or sell (Put) the underlying at a stated price and date.
- Swap: Correct. Swaps are contracts of the forward market to exchange a commodity or security with another at a pre-determined ratio and date.
