Avatto > CFA Level 1 > PRACTICE QUESTIONS > Derivatives > Derivatives Section 2

Derivatives MCQ - Derivatives Section 2

21 If the present value of a convenience yield exceeds the present value of its storage costs, then the commodity’s forward price is most likely:

If the present value of convenience yield exceeds the present value of its storage costs, then the commodity’s forward price is less than the spot price compounded at the risk-free rate.

22 Which of the following best describes the price of a forward contract?

Costs increase the forward price and benefits reduce the forward price.

23 The forward rate of an FRA is equal to the:

FRAs are based on Libor, and they represent forward rates, not spot rates.

24 Which of the following is most likely true about a 30-day FRA on 90-day Labor? The forward rate is calculated based on:

This FRA expires in 30-days and is based on a 90-day loan which starts on day 30. The forward rate represents the rate which can be locked in today for a 90-day loan starting 30-days from today. This rate is calculated based on the 30-day spot rate and the 120-day spot rate.

25 Ignoring the time value of money, the forward contract payoffs will be:

Forward payoffs occur all at expiration, whereas futures payoffs occur on a day-to-day basis but would equal forward payoffs ignoring interest.

Your Progress

0%

Start Practising!

You've answered 0 of 60 questions in this topic.

Practice Spotlight

Build momentum in Derivatives Section 2

Start with a short question set, review every explanation, and revisit difficult questions before moving ahead.

Day 8 / 10

Global Spotlight

Build Your First Streak

Complete one short Derivatives Section 2 session today, then return tomorrow. Consistency matters more than a long first session.

Day 2 / 10

Question Spotlight

Question:

Which of the following statements is most accurate?

A. A swap is equivalent to a series of forward contracts, each created at the swap price.
B. A swap is equivalent to a series of long forward contracts, matched with short future contracts.
C. A swap is equivalent to a series of forward contracts, each created at their appropriate forward prices.

Correct answer: A

Explanation:

Each implicit forward contract is said to be off-market, because it is created at the swap price, not the appropriate forward price, which would be the price created…

Click to view the complete question details

Day 8 / 10 Open this question

Community Insight

Based on 286 saved attempts

Most Attempted TopicDerivatives Section 1
Most Challenging TopicDerivatives Section 1
Average Accuracy98%

Featured Question

(Based on recent community answers)

Q. #284370% Incorrect

Risk neutral investors:

Try This Question →

This Week's Challenge

Complete 20 questions. Community average: 1.0 this week.

0 / 20 Start Challenge →

Why Practice with Avatto?

High Quality MCQsExam-focused questions with accurate answers

Detailed ExplanationsStep-by-step explanations to enhance learning

Latest Exam PatternBased on updated syllabus and pattern

Performance AnalyticsTrack performance and improve weak areas

100% Free PracticePractice unlimited questions for free

Forgot your password?

I agree with the Terms.