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FRM Part 2 Derivatives — practice questions

Explore 29 free Derivatives questions in FRM Part 2 Finance. Open each question or exercise to read its content, reference answers and available explanation.

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Derivatives questions and exercises with answers

Showing questions 1–29 of 29.

Acting to reduce a firm's exposure to a risk it already faces is called:Read the answer and worked solution →Betting on a future outcome in order to profit from it is called:Read the answer and worked solution →Merging with its own supplier to control input prices is a firm's use of vertical:Read the answer and worked solution →Although it reduces commodity price risk, that strategy is described as not being a perfect:Read the answer and worked solution →An agreement with a supplier fixing terms for years ahead is a hedge using a contract that is:Read the answer and worked solution →Unlike a private supply agreement, a futures contract is traded on an:Read the answer and worked solution →Futures exchanges require traders to post collateral known as:Read the answer and worked solution →Currency exposures are classified as translation, economic and:Read the answer and worked solution →A private agreement between two parties to swap currencies on a set future date is a:Read the answer and worked solution →Both parties to that agreement are under a contractual:Read the answer and worked solution →A contract giving the owner the right but not the obligation to trade an asset is a financial:Read the answer and worked solution →Because their value comes from another asset, options are classed as:Read the answer and worked solution →The most common option contracts are written on shares of:Read the answer and worked solution →The fixed price written into an option contract is called the:Read the answer and worked solution →The price paid up front to buy an option contract is called the:Read the answer and worked solution →Choosing to trade at the strike price under an option is described as:Read the answer and worked solution →If the option is not exercised by its date, the contract will simply:Read the answer and worked solution →Concerning whether an option is exercised, the writer of the option has:Read the answer and worked solution →A trader buying spare stock because prices may rise, purely to protect against that rise, is:Read the answer and worked solution →A futures contract is described as standardised, meaning its terms are not:Read the answer and worked solution →The exposure a coffee chain faces from volatile bean prices is commodity price:Read the answer and worked solution →Catch the hedging toolsRead the answer and worked solution →Pop the currency risksRead the answer and worked solution →Run the risk gatesRead the answer and worked solution →Slice the risk wordsRead the answer and worked solution →Futures or forwardRead the answer and worked solution →Sort the risk wordsRead the answer and worked solution →Type the numberRead the answer and worked solution →Risk bingoRead the answer and worked solution →

Worked practice questions

Acting to reduce a firm's exposure to a risk it already faces is called:

  1. Hedging
  2. Heading
  3. Hoarding
  4. Housing
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Correct answer: A. Hedging

1. The exposure exists before any action is taken. 2. The action is meant to cut that exposure. 3. Such an action is hedging. _Source: OpenStax Principles of Finance 2e, Chapter 20, Risk Management and the Financial Manager._

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Betting on a future outcome in order to profit from it is called:

  1. Circulating
  2. Speculating
  3. Stipulating
  4. Simulating
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Correct answer: B. Speculating

1. No existing exposure is being reduced here. 2. The position is taken deliberately for gain. 3. That is speculating. _Source: OpenStax Principles of Finance 2e, Chapter 20, Risk Management and the Financial Manager._

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Merging with its own supplier to control input prices is a firm's use of vertical:

  1. Integration
  2. Innovation
  3. Inspection
  4. Insulation
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Correct answer: A. Integration

1. The supplier and buyer become one company. 2. Input prices then stop moving against the firm. 3. That strategy is vertical integration. _Source: OpenStax Principles of Finance 2e, Chapter 20, Risk Management and the Financial Manager._

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