A Derivative

question 19

Multiple Choice

A derivative:

• A)​requires little or no initial investment.
• B)​derives its value from changes in its underlying rate.
• C)​can be settled for cash without having to buy or sell the related asset or liability.
• D)​All of the above.

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Definitions:

Futures Option Contracts

Options contracts that give the buyer the right, but not the obligation, to buy or sell a futures contract at a set price on or before a certain date.

Options Contracts

Financial derivatives that give buyers the right, but not the obligation, to buy or sell an underlying asset at a specified price on or before a certain date.

Currency Swap

A financial agreement to exchange currency between two parties at a set rate, often used to hedge currency risk.

Interest Rate Swaps

A financial derivative contract between two parties to exchange interest rate payments on a specified principal amount, typically involving the swap of fixed for variable interest rates.