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:

Plant Size

Plant size refers to the capacity or physical dimensions of a facility where goods are produced, impacting the volume of production and potential economies of scale.

Diminishing Marginal Returns

A principle stating that as investment in a particular area increases, the rate of profit from that investment, after a certain point, cannot continue to increase and may decrease.

Number of Workers

The total count of individuals engaged in the labor force of an organization, sector, or economy at any given time.

Units of Output

The quantity of product or service produced by a company, industry, or economic sector.