NISM Certifications · NISM-Series-VIII: Equity Derivatives · Basics of Derivatives
In a derivatives contract, the term 'underlying' refers to which of the following?
The underlying is the asset, index or rate from which a derivative contract obtains its value. Margin, expiry date and premium are contract features or payments, so they are not the underlying that determines the contract's price movement.
- AThe asset or index from which the contract derives its valueCorrect
- BThe margin deposited with the clearing corporation
- CThe expiry date on which the contract is settled
- DThe premium paid by the buyer of the contract
Explanation
A derivative has no value of its own; its value depends on an underlying such as a share, an index, a commodity or a currency. Margin, expiry date and premium are features of the contract, not the underlying.
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