Question

Of the following derivative instruments, which one does not have the obligation to exercise on or prior to the due date?
A) Swap
B) Option
C) Futures contract
D) Forward contract

Answer 1

Option

An option is a contract where option buyer get the right to buy or sell a certain asset on or prior to the due date but not the obligation. whereas, Futures contract gives the buyer the obligation to purchase a specific asset and the seller to sell the asset at a specific future date.Swap is a derivative contract through which two parties agreed to exchange the cash flows or liabilities on a date. Similarly a forward contract is also a contract between two parties to buy or sell an asset at a agreed price on a future fixed date.

The answer is Options. Options gives right to the buyer to exercise the contract but not the obligation to exercise the contract on or prior to the due date.