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IIA CIA Exam
Certified Internal Auditor Exam (Page 10 )

Updated On: 12-Jan-2026
Page 10 of 342
PDF with 1702 Questions

A contractual arrangement that gives the owner the right to buy or sell an asset at a fixed price at any moment in time before or on a specified date is a(n)

  1. European option.
  2. Foreign option.
  3. Future option.
  4. American option.

Answer(s): D

Explanation:

An American option is a contractual arrangement that gives the owner the right to buy or sell an asset at a fixed price at any moment in time before or on a specified date.



The type of option that does not have the backing of stock is called a(n)

  1. Covered option
  2. Unsecured option.
  3. Naked option
  4. Put option.

Answer(s): C

Explanation:

A naked or uncovered option is a call option that does not have the backing of stock. Thus, the option writer will have to purchase the underlying stock if the call option is exercised.



A call option on an ordinary share is more valuable when there is a lower

  1. Market value of the underlying share.
  2. Exercise price on the option.
  3. Time to maturity on the option.
  4. Variability of market price on the underlying share.

Answer(s): B

Explanation:

The lower the exercise price, the more valuable the call option The exercise price is the price at which the call holder has the right to purchase the underlying share.



If a call option is out-of-the-money, the

  1. Option has expired
  2. Value of the underlying asset is less than the exercise price.
  3. Option no longer exists.
  4. Option has become a put option.

Answer(s): B

Explanation:

When the value of the asset underlying a call option is less than the exercise price of the option, the option is out-of-money.



An entity has recently purchased some stock of a competitor as part of a long-term plan to acquire the competitor. However, it is somewhat concerned that the market price of
this stock could decrease over the short run. The entity could hedge against the possible decline in the stock's market price by

  1. Purchasing a call option on that stock.
  2. Purchasing a put option on that stock.
  3. Selling a put option on that stock.
  4. Obtaining a warrant option on that stock.

Answer(s): B

Explanation:

A put option is the right to sell stock at a given price within a certain period. If the market price falls, the put option may allow the sale of stock at a price above market, and the profit of the option holder will be the difference between the price stated in the put option and the market price, minus the cost of the option, commissions, and taxes. The entity that issues the stock has nothing to do with put and call) options.



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