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    Question

    Which of the following is NOT a type of

    derivative?
    A Forward Correct Answer Incorrect Answer
    B Future Correct Answer Incorrect Answer
    C Options Correct Answer Incorrect Answer
    D Swaps Correct Answer Incorrect Answer
    E All the above are derivatives Correct Answer Incorrect Answer

    Solution

    A forward rate agreement is an agreement to lend money on a particular date in the future at a rate that is determined today. It is like a forward contract where the underlying asset is a bond. A forward rate agreement is an agreement to lend money on a particular date in the future at a rate that is determined today. It is like a forward contract where the underlying asset is a bond. Options are one-way contract where one party has the right but not the obligation to trade in a particular asset at a particular price on pre-determined date/dates or in a particular time interval. Interest rate swaps are agreements where one side pays the other a particular interest rate (fixed or floating) and the other side pays the other a different interest rate (fixed or floating).

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