Question 1

The advantages of the over-the-counter options market include all of the following except

Accepted Answer

A) customized contracts 
B) privately executed 
C) freedom from government regulation 
D) lower prices 
E) none of the above

Question 2

Which of the following is not the task of market makers?

Accepted Answer

A) provide liquidity 
B) offer to buy and sell 
C) provide price transparency 
D) work as a sole specialist 
E) none of the above

Question 3

Each futures contract has both a long and a short position and counts as only one unit of open interest.

Accepted Answer

A) True 
 B)False

Question 4

Which one of the following is not a type of transaction cost in options trading?

Accepted Answer

A) all of the above 
B) the bid-ask spread 
C) the commission 
D) clearing fees 
E) the cost of obtaining a quote

Question 5

The Put and Call Brokers and Dealers Association created the first organized options exchange.

Accepted Answer

A) True 
 B)False

Question 6

The exercise price can be set at any desired level on each of the following types of options except

Accepted Answer

A) FLEX options 
B) equity options 
C) over-the-counter options 
D) all of the above 
E) none of the above

Question 7

A market maker always avoids the cost of the bid-ask spread.

Accepted Answer

A) True 
 B)False

Question 8

Over-the-counter options dealers do not have to be members of an options exchange.

Accepted Answer

A) True 
 B)False

Question 9

The largest futures exchange in the United States is the EMC Group.

Accepted Answer

A) True 
 B)False

Question 10

Where did the U.S.futures market originate?

Accepted Answer

A) Kansas 
B) New York 
C) Minneapolis 
D) Chicago 
E) none of the above

Question 11

Credit risk is handled in forward markets by daily marking-to-market.

Accepted Answer

A) True 
 B)False

Question 12

The options market is regulated by the Securities Investor Protection Corporation.

Accepted Answer

A) True 
 B)False

Question 13

Which of the following is a legitimate type of option order on the exchange?

Accepted Answer

A) purchase order 
B) limit order 
C) execution order 
D) floor order 
E) all of the above

Question 14

A put option increases in value when the stock price decreases.

Accepted Answer

A) True 
 B)False

Question 15

The option price is also referred to as the

Accepted Answer

A) strike 
B) spread 
C) premium 
D) fee 
E) none of the above

Question 16

Offsetting an over-the-counter option contract cancels both contracts.

Accepted Answer

A) True 
 B)False

Question 17

The over-the-counter options market is much larger than the exchange-listed options market.

Accepted Answer

A) True 
 B)False

Question 18

The derivatives exchange with the largest trading volume is the

Accepted Answer

A) Moscow Exchange 
B) Nasdaq OMX 
C) CME Group 
D) Pacific Stock Exchange 
E) National Stock Exchange of India

Question 19

Despite the fact that forward contracts carry more credit risk than futures contracts,forward contracts offer what primary advantage over futures contracts?

Accepted Answer

A) the over-the-counter forward market is a highly regulated market 
B) forward contracts prevent the writer from assuming the credit risk of the buyer 
C) terms and conditions are tailored to the specific needs of the two parties involved 
D) transaction information between the two parties involved in the forward contract is readily available to the public 
E) conditions of the forward contract,such as delivery date and location,cannot be altered

Question 20

The exercise price is also called the striking price.

Accepted Answer

A) True 
 B)False

Exam 2: Structure of Options Markets

The advantages of the over-the-counter options market include all of the following except

Which of the following is not the task of market makers?

Each futures contract has both a long and a short position and counts as only one unit of open interest.

Which one of the following is not a type of transaction cost in options trading?

The Put and Call Brokers and Dealers Association created the first organized options exchange.

The exercise price can be set at any desired level on each of the following types of options except

A market maker always avoids the cost of the bid-ask spread.

Over-the-counter options dealers do not have to be members of an options exchange.

The largest futures exchange in the United States is the EMC Group.

Where did the U.S.futures market originate?

Credit risk is handled in forward markets by daily marking-to-market.

The options market is regulated by the Securities Investor Protection Corporation.

Which of the following is a legitimate type of option order on the exchange?

A put option increases in value when the stock price decreases.

The option price is also referred to as the

Offsetting an over-the-counter option contract cancels both contracts.

The over-the-counter options market is much larger than the exchange-listed options market.

The derivatives exchange with the largest trading volume is the

Despite the fact that forward contracts carry more credit risk than futures contracts,forward contracts offer what primary advantage over futures contracts?

The exercise price is also called the striking price.