Which Statement Is Correct About Derivative Instruments

question 51

Multiple Choice

Which statement is correct about derivative instruments?

• A)Any contract that entitles the holder to joint interest in an entity after deducting all of its liabilities.
• B)A contract whose value changes according to a specified variable, requires little or no initial investment, and is settled at a future date.
• C)Any contract that gives rise to a financial asset for one entity and a financial liability or equity instrument for another entity.
• D)A contract that gives the holder the residual interest in an entity after deducting all of its liabilities.

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Definitions:

Risk

The potential for financial loss or gain in an investment due to various factors including market volatility.

Return

The gain or loss on an investment over a specified period, expressed as a percentage of the investment’s cost.

Correlation Coefficient

A statistical measure that calculates the strength and direction of a linear relationship between two variables, ranging from -1 (perfect negative correlation) to +1 (perfect positive correlation).

Expected Return

The expected return is the anticipated profit or loss from an investment over a specified period, based on historical or projected rates.