Which of the Following Is/are Not True

question 47

Multiple Choice

Which of the following is/are not true?

• A)A derivative is a financial instrument whose value changes in response to changes in an underlying observable variable, such as a stock price, an interest rate, a currency exchange rate, or a commodity price.
• B)Unlike equity securities, which have no definite settlement date, firms settle a derivative at a date that the terms of the instrument specify.
• C)A derivative requires an investment that is small, relative to the investment in a contract that is similarly exposed to changes in market factors, or requires no investment at all.
• D)Firms use derivative instruments to hedge the risks that arise from changes in interest rates, foreign exchange rates, and commodity prices.
• E)The general idea behind hedging is that changes in the fair value of the derivative instrument map the changes in the fair value of an asset or liability or changes in future cash flows, thereby multiplying the effects of those changes.

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Definitions:

Plant Size

The scale or capacity of a factory or production facility, which can affect production efficiency, costs, and the ability to meet demand.

Short Run

A period in economics during which the quantities of at least one input, such as plant size, cannot be changed.

Variable

An element, feature, or factor that is liable to vary or change.

Marginal Product

This measures the additional output that is produced by adding one more unit of a specific input, keeping all other inputs constant.