CSEET · Economic and Business Environment · Indian Financial Markets
Which feature distinguishes an option contract from a futures contract?
An option gives the buyer, on payment of a premium, the right but not the obligation to exercise, while the seller must perform if exercised. In futures both parties are obliged. The buyer's loss is limited to the premium paid.
- AThe option buyer pays a premium and has a right but not an obligation to exercise, while the option seller is obliged if exercisedCorrect
- BBoth buyer and seller of an option are obliged to perform on expiry
- COption contracts can be traded only over the counter and never on exchanges
- DThe option buyer's potential loss is unlimited while the seller's loss is limited to the premium
Explanation
The option buyer pays a premium and may choose whether to exercise; the seller (writer) must perform if the buyer exercises. Mutual obligation describes futures. The loss statement is reversed: the buyer's loss is limited to the premium, while the writer's potential loss can be large.
Did you get it right without looking?
One question tells you little. A timed set on Indian Financial Markets shows your real accuracy, how long you take and where you lose marks.
More Indian Financial Markets questions
- A company issues new equity shares directly to the public for the first time through an initial public offering. In which segment of the fin…
- Which of the following statements about the functions and regulation of the Indian financial system is correct?
- Who regulates exchange-traded equity derivatives such as index futures and options in India?
- In the Indian securities market, which of the following is a debt instrument issued by the Government of India with a maturity of less than …
- Under the RBI's current liquidity management framework, the Standing Deposit Facility (SDF) rate is set relative to the policy repo rate. Wh…
- Which of the following best describes Commercial Paper (CP) in the Indian money market?