Derivative Instruments Exist Because

question 101

Multiple Choice

Derivative instruments exist because

• A) they help shift risk from risk-averse investors to risk-takers.
• B) they help in forming prices.
• C) they have lower investment costs.
• D) allow investors to hedge portfolio risk.
• E) All of these are correct.

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Definitions:

Long-Term Costs

The total expenses incurred by a business in producing goods or services over an extended period, including both fixed and variable costs.

Hindsight Bias

The tendency to believe, after an event has occurred, that one would have predicted or expected the outcome, even though it was not predictable.

Overconfidence Bias

The tendency of individuals to overestimate their own abilities, skills, or chances of success.

Predictions Incorrect

Situations where anticipated outcomes fail to materialize as expected due to various factors such as flawed assumptions or unforeseen events.