DERIVATIVES AND RISK MANAGEMENT
Chapter notes, video classes, MCQ practice tests and quick-revision one-liners for Risk Management (Elective) — CAIIB.
One-liners from this chapter
Free sample — 8 of 66 rapid-fire Q&A cards.
What is a derivative instrument in the context of financial risk management?
A derivative is a financial contract whose value is derived from an underlying asset such as interest rates, currencies, equities, or commodities. It is used primarily for hedging risk or speculation.
What is a swaption in derivatives risk management?
An option giving the right to enter an interest rate swap.
What are the four main types of derivative instruments used in Indian banking?
The four main types are forwards, futures, options, and swaps. Each serves a distinct purpose in managing market risk exposures.
What is a credit default swap (CDS) used for?
Transferring credit risk of a reference entity to protection seller.
What is the difference between an exchange-traded derivative and an OTC derivative?
Exchange-traded derivatives are standardised contracts traded on recognised exchanges with a central counterparty clearing, while OTC derivatives are privately negotiated between two parties and carry counterparty credit risk.
What is Gamma in options risk management?
Rate of change of Delta with respect to underlying asset price.
What is a forward rate agreement (FRA) and how does it manage interest rate risk?
A Forward Rate Agreement is an OTC contract that locks in an interest rate for a future period, allowing banks to hedge against adverse movements in interest rates on their loan or deposit portfolios.
What is Vega in the context of options pricing?
Sensitivity of option price to changes in implied volatility.
Video classes for this chapter
More chapters in Module F
Master the full RM syllabus
Every chapter of Risk Management (Elective) — videos, tests, notes and one-liner decks in one place.