Derivatives Level 3 (Capital Markets Programme) – Quiz 09

Last Updated: June 2024

Table of Contents

CISI – Derivatives Level 3 (Capital Markets Programme) Quiz 09 is completed –
understand the application and effects of delta hedging and be able to establish an investor’s net long / short position
Comparison of Exchange-Traded and OTC On completion, the candidate should:
understand the advantages and disadvantages of using exchangetraded versus OTC products: • exposure flexibility versus contract specification • ease / cost of closing OTC transactions versus Exchange Traded positions • price transparency • best execution • documentation
• clearing and settlement mechanisms
Applications of Derivative Strategies On completion, the candidate should:
be able to calculate (through the knowledge gained above), a derivatives position with an underlying market equivalency, either to establish or to hedge a required exposure: • Long / short through futures • Long / short through single options • Long / short through option combinations • Limits to upside and / or downside exposures (Sufficient contract / product information will be provided to candidates in the exam to enable the required calculations)
understand the uses and advantages of covered calls and protective puts: • motivation for the writer of a covered call • motivation for the buyer of a protective put • risks / maximum losses • use in different market conditions
understand the relative attractiveness of derivative positions or investments to specific client circumstances: • Private Client investment portfolios • Individual portfolios • Institutional Asset Managers • Corporate Treasurers • Hedge Funds • Sovereign Wealth Funds • Pension Funds
Regulatory Requirements :
Scope of Regulation On completion, the candidate should:
know in general terms the scope and purposes of regulation of derivatives and the main activities of regulators: • UK / Europe / other • US (Fed, SEC & CFTC) • Far East (Hong Kong, Singapore and Japan) • MiFID II, ESMA, EMIR • Orderly Markets • Consumer Protection • Education • Combating Financial Crime • Regulation of individuals, companies • Supervision • Sanction processes • Passporting regulated status • Classifications / Exemption

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