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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Definitions:

Amino Acid Histidine

An essential amino acid important in the growth and repair of tissues, and the production of red and white blood cells.

DNA

Deoxyribonucleic acid, a molecule that carries the genetic instructions used in growth, development, functioning, and reproduction of all known living organisms.

Complimentary DNA Strand

The DNA strand that is complementary to the template strand; it pairs with the template strand during DNA replication.

Base Pair

Two nucleotides on opposite strands of DNA that are connected by hydrogen bonds, commonly adenine with thymine, or cytosine with guanine.