One Important Reason for the Existence of Derivatives Is That

question 52

Multiple Choice

One important reason for the existence of derivatives is that they:

• A) help reduce market volatility by making speculation more difficult.
• B) have valuable tax benefits.
• C) contribute to market completeness.
• D) are risk-free.

---

Definitions:

Asset Replacement

The process of substituting old assets with new ones to maintain or improve operational efficiency.

Asset Expansion

The process of increasing a company's investment in current and fixed assets to boost its capacity and efficiency.

Pretax Proceeds

The amount of money generated from a sale or transaction before any taxes are deducted.

Working Capital

Working capital, rephrased from net working capital, indicates the liquidity available to a business for day-to-day operations, calculated as current assets minus current liabilities.