A Critical Characteristic of a Derivative Is That the Instrument

question 53

Multiple Choice

A critical characteristic of a derivative is that the instrument

• A)​derives its value from a related asset or liability.
• B)​derives its value from changes in value of a related asset or liability.
• C)​requires that the related asset or liability be sold or bought at settlement.
• D)​requires the holder of the derivative instrument to make a significant investment.

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Definitions:

Decrease In Assets

A reduction in the value or quantity of the resources owned by an entity.

Increase Accounts Payable

An action reflecting a rise in the amount owed by a company to its creditors for goods or services received but not yet paid for.

Accounts Payable

Short-term liabilities representing amounts owed by a business to suppliers or creditors for goods and services purchased on credit.

Merchandise Inventory

The total value of a company's goods that are available for sale to customers.