CFA Level I · CFA Level I Exam · Derivative Instrument and Derivative Market Features
A derivative is most accurately described as a financial instrument whose value:
A derivative is a financial instrument whose value depends on the performance of an underlying asset, rate or index, such as a share, commodity, currency or interest rate. Its value is not set by issuer earnings or book value.
- Ais set by the issuer's earnings
- Bdepends on the performance of an underlying asset or rateCorrect
- Cequals the book value of the issuer's assets
Explanation
A derivative derives its value from the performance of an underlying, such as a stock, bond, commodity, currency or interest rate. It is not tied to issuer earnings or to book value of assets.
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