Reading 48: derivative instrument and derivative market features Flashcards
1
Q
Which of the following statements most accurately describes a derivative security? A derivative:
always increases risk.
has no expiration date.
has a payoff based on an asset value or interest rate.
A
A derivative’s value is derived from another asset or an interest rate.
(LOS 48.a)
2
Q
Which of the following statements about exchange-traded derivatives is least accurate? Exchange-traded derivatives:
are liquid.
are standardized contracts.
carry significant default risk.
A
Exchange-traded derivatives have relatively low default risk (counterparty credit risk) because the clearinghouse stands between the counterparties involved, in most contracts. (LOS 48.b)
