What Is the Deciding Factor When Determining How a Financial

question 27

Multiple Choice

What is the deciding factor when determining how a financial instrument should be classified?

• A) The anticipated date of settlement
• B) Substance of the transaction
• C) Legal form of the transaction
• D) The delivery of cash on the settlement date

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Definitions:

Time To Expiration

This refers to the remaining time until a derivative contract, such as an option or futures contract, becomes invalid or ceases to exist.

Underlying Security

An asset, such as a stock or bond, on which financial derivatives like options and futures are based.

Delta

In finance, it represents the ratio that compares the change in the price of an asset, usually a marketable security, to the corresponding change in the price of its derivative.

Gamma

A measure of the rate of change in an option's delta for a one-unit change in the price of the underlying asset.