FRM Part 1 Practice Questions — All Questions

A call option gives the holder the right to:

• a.Sell the underlying at the strike
• b.Buy the underlying at the strike✓
• c.Receive fixed coupons
• d.Default without penalty

A call is the right (not obligation) to buy the underlying at the strike price.

A key difference between futures and forwards is that futures are:

• a.Exchange-traded and marked to market daily✓
• b.Always customized and unregulated
• c.Never settled
• d.Options, not obligations

Futures are standardized, exchange-traded, and marked to market daily; forwards are OTC.

An interest-rate swap typically exchanges:

• a.Two stocks
• b.Two currencies' principal only
• c.Fixed for floating interest payments✓
• d.Commodities for bonds

A plain-vanilla interest-rate swap exchanges fixed-rate for floating-rate payments.

Using derivatives to reduce an existing exposure is called:

• a.Speculating
• b.Arbitraging
• c.Leveraging
• d.Hedging✓

Hedging uses derivatives to offset an existing risk exposure.