Standardization of Derivative Contracts

question 16

Multiple Choice

Standardization of derivative contracts:

• A)Result in increased risk for the parties involved.
• B)Makes them more difficult to understand and therefore leads to increased misuse.
• C)Makes the premiums involved with these contracts increase.
• D)Leads to greater liquidity and lower risk.

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Definitions:

Financial Perspective

A viewpoint focusing on the monetary aspects of an organization's strategy, often evaluated using financial performance indicators.

Return On Investment

A metric for assessing the effectiveness or profits from an investment, determined by dividing the net earnings by the investment's expense.

Performance Metrics

Performance metrics are quantifiable measures used to gauge an organization's performance in various areas, similar to the purpose of a performance measurement system but focused on specific measurable outcomes.

Nonfinancial Metrics

These metrics evaluate aspects of a business that aren't directly related to financial figures, such as customer satisfaction or employee turnover.