Derivative Markets May Have at Least Three Advantages Over the Corresponding

question 6

Multiple Choice

Derivative markets may have at least three advantages over the corresponding cash (spot) market for the same financial asset. Which of the below is ONE of these advantages?

• A) Transactions typically can be accomplished faster in the derivatives market.
• B) It will always cost more to execute a transaction in the derivatives market in order to adjust the risk exposure of an investor's portfolio to new economic information than it would cost to make that adjustment in the cash market.
• C) All derivative markets can absorb a greater dollar transaction without an adverse effect on the price of the derivative instrument; that is, the derivative market may be more liquid than the cash market.
• D) Some derivative markets can absorb a greater dollar transaction but with an adverse effect on the price of the derivative instrument; that is, the derivative market may be more liquid than the cash market.

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