Which of the Following Is Not True Regarding Derivatives

question 59

Multiple Choice

Which of the following is not true regarding derivatives?

• A)A derivative is a financial instrument whose value is based upon another financial instrument, stock index or interest rate, or interest rate index.
• B)Derivatives can be classified into two general types: forward-based and option-based derivatives.
• C)Unrealized holding gains and losses on derivatives are not recognized.
• D)SFAS No. 133 values derivatives at fair value.

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Definitions:

Interest

Interest is the charge for borrowing money, typically expressed as an annual percentage rate.

Effective Rate

The actual interest rate on an investment or loan, considering the compounding of interest at specific intervals within a given time period.

Interest Rate

The proportion of a loan charged as interest to the borrower, typically expressed as an annual percentage.

Effective Yield

The total yield on an investment after considering the effects of compounding interest or dividends over a specific period.