Derivative Instrument and Derivative Market Features CFA Flashcards - Medical Study Cards
Master Derivative Instrument and Derivative Market Features with Oncourse flashcards. These spaced repetition flashcards are designed for medical students preparing for NEET PG, USMLE Step 1, USMLE Step 2, MBBS exams, and other medical licensing examinations.
Derivative Instrument and Derivative Market Features Flashcard Deck - 10 Cards
Flashcard 11: In derivative contracts, what is the "underlying"?
Answer: The security, asset, or variable that determines the value of the derivative contract.
Flashcard 12: In derivative contract settlement, what is the difference between physical delivery and cash settlement?
Answer: Physical delivery requires the actual transfer of the underlying asset. Cash settlement requires only a transfer of cash equal to the net difference between the contract price and the market price at expiration.
Flashcard 13: What are three key advantages of exchange-traded derivatives compared to over-the-counter (OTC) derivatives?
Answer: They have higher liquidity, greater transparency, and minimal counterparty credit risk (due to the clearinghouse).
Flashcard 14: In exchange-traded derivative markets, how do exchange members (dealers or market makers) primarily earn their profits?
Answer: Through the bid/ask spread between buy and sell prices, rather than speculating on the underlying's direction.
Flashcard 15: What is the formula for the Purchase Price (Loan Amount) in a repo transaction?
Answer: \[\text{Purchase Price} = \frac{\text{Market Value of Securities}}{\text{Initial Margin}}\]
Flashcard 16: What is the formula linking the repo haircut to the initial margin?
Answer: \[\text{Haircut} = 1 - \frac{1}{\text{Initial Margin}}\]
Flashcard 17: How does an investor with a short position profit?
Answer: They profit when the underlying asset's price decreases.
Flashcard 18: In a repo agreement, when must a borrower provide "variation margin"?
Answer: When the collateral's market value falls below the required initial margin level.
Flashcard 19: What type of derivative contract pays out if a specific bond issuer defaults?
Answer: A credit default swap (CDS).
Flashcard 20: In the margin call price formula, what does the "Maintenance Margin" represent?
Answer: The minimum percentage of equity the investor must maintain in their account.
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