1.

A derivative instrument is best described as

a. A contract that conveys to a second entity a right to future collections
on accounts receivable from a first entity
b. Evidence of an ownership interest in an entity
c. A contract that has its settlement value tied to an
underlying and a notional amount
d. A contract that conveys to a second entity a right to receive cash from a
first entity.

2. All of the following are characteristics of a derivatives, except;

a. It is acquired for the purpose of generating a profit from
short-term fluctuation in market price
b. The value changes in response to an underlying
c. It requires no initial investment or an initial small investment
d. It is settled at a future date

3. All of the following are characteristics of a derivatives, except;

a. The instrument has one or more underlying an identified payment provision
b. The instrument requires large investment at the inception of
contract
c. The instrument requires or permits net settlement
d. All of these are characteristics

4. Which is NOT a characteristic of derivative?

a. Terms that require or permit net settlement
b. Must be highly effective throughout the life
c. No initial net investment
d. An underlying and a notional amount.

5. Which of the following instruments is NOT considered a

derivative instrument?
a. Currency futures
b. Share index option
c. Bank certificate of deposit
d. Interest rate swap