CFA Level I · CFA Level I Exam · Derivative Instrument and Derivative Market Features
Which of the following best describes a derivative instrument?
A derivative is a financial contract whose value is derived from the performance of an underlying asset or variable, such as a stock, commodity, currency or interest rate. It is not an ownership claim like equity and not a secured loan.
- AA contract whose value depends on the performance of an underlying asset or variableCorrect
- BA security that gives the holder an ownership share in the issuing company
- CA loan agreement in which the borrower pledges collateral to the lender
Explanation
A derivative is a contract that derives its value from an underlying, such as a stock, bond, commodity, currency, interest rate or index. Ownership shares describe equity, and collateralized lending describes a secured loan, so neither fits.
Did you get it right without looking?
One question tells you little. A timed set on Derivative Instrument and Derivative Market Features shows your real accuracy, how long you take and where you lose marks.
More Derivative Instrument and Derivative Market Features questions
- In an exchange-traded futures market, the clearinghouse most likely reduces counterparty credit risk by:
- Compared with futures traded on an exchange with a clearinghouse, forward contracts traded over the counter without central clearing most li…
- A futures contract is marked to market daily. An investor holds a long position in 10 contracts, each with a multiplier of 100 units. The se…
- An investor owns 1,000 shares currently priced at $40 and buys 1,000 put options with an exercise price of $38 at a premium of $2 each. The …
- Compared with a forward commitment, a contingent claim such as an option is best described as one in which:
- Compared with over-the-counter (OTC) derivatives, exchange-traded derivatives most likely have: