A Derivative Instrument

question 4

Multiple Choice

A derivative instrument:

• A) comes into existence after the underlying instrument is in default.
• B) is a low-risk financial instrument used by highly risk-averse savers.
• C) gets its value and payoff from the performance of the underlying instrument.
• D) should be purchased prior to purchasing the underlying security.

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Definitions:

Express Warranty

A written or verbal promise made by a seller to a buyer about the quality or nature of a product, offering assurance that certain facts or conditions are true.

Magnuson-Moss Warranty Act

A federal law in the United States that governs warranties on consumer products to ensure protection and rights for consumers.

Full Warranty

A comprehensive guarantee that a manufacturer or seller makes regarding the condition of its product, including a promise to repair or replace defective items.

Consumer Goods

Products that are purchased by individuals for personal or household use, rather than by businesses or for industrial purposes.