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NISM Certifications · NISM-Series-VIII: Equity Derivatives · Basics of Derivatives

Which of the following best describes a derivative contract?

A derivative is a contract whose value is derived from an underlying asset such as a share, index, commodity or currency. It does not itself confer ownership or voting rights, and it is not a capital-raising instrument or a bank deposit.

  1. AA contract whose value is derived from the value of an underlying asset such as a share, index or commodityCorrect
  2. BA contract that gives the holder ownership rights and voting rights in a company
  3. CA security issued by a company to raise long-term capital through public subscription
  4. DA deposit placed with a bank that earns a fixed rate of interest

Explanation

A derivative is a financial contract whose value depends on, or is derived from, an underlying asset or index. Ownership and voting rights belong to equity shares, capital raising describes primary issues, and fixed-rate deposits are not derivatives.

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