A Derivative Contract Is Transacted Between a Hedger and a Speculator

question 55

Multiple Choice

A derivative contract is transacted between a hedger and a speculator. What is the impact of the transaction on the risk profile of these two parties?

• A)It increases the risk to both parties.
• B)It decreases risk in both cases.
• C)It increases risk of the hedger and decreases risk of the speculator.
• D)It reduces the risk of the hedger and increases the risk of the speculator.

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Definitions:

Payment Streams

A series of payments made over a period of time, often in the context of loans, annuities, or investments.

Equivalent

A term used to denote items, quantities, or expressions that have the same value or function, even though they may appear different at first glance.

Canada Savings Bonds

Canadian government savings products that are available for a limited period each year and offer a guaranteed rate of interest.

Per Annum

A term used to represent an annual occurrence or an amount over the course of a year.