Free CFA Level I Derivatives Practice Questions
Derivatives on the CFA Level I exam cover forward contracts, futures, options, and swaps, from basic payoff structures to introductory pricing and hedging strategies. Weighted 5-8% (CFA Institute).
Sample Questions
Question 1
Easy
An initial margin requirement in a standardized futures contract is most accurately described as:
Solution
A is correct. Initial margin in a futures contract is a performance bond (good-faith collateral) that both the long and short post with the clearinghouse when the position is opened. It is a small fraction of the contract's notional value, reflecting the leveraged nature of futures, and the clearinghouse uses it to absorb daily mark-to-market losses. The deposit is refundable: any unused balance is returned when the position is closed, which distinguishes it from non-refundable commissions or exchange fees.
Question 2
Medium
Which of the following best describes a derivative security?
Solution
A is correct.
A derivative is a financial instrument whose value depends on (is derived from) the value of an underlying asset, rate, or index.
A derivative is a financial instrument whose value depends on (is derived from) the value of an underlying asset, rate, or index.
Question 3
Hard
A receiver swaption gives the holder the right to enter into a swap as the:
Solution
A is correct.
A receiver swaption gives the holder the right to enter a swap as the fixed-rate receiver (and floating-rate payer). The holder benefits if fixed rates decline, making the locked-in fixed rate more valuable.
A receiver swaption gives the holder the right to enter a swap as the fixed-rate receiver (and floating-rate payer). The holder benefits if fixed rates decline, making the locked-in fixed rate more valuable.