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Questions and Answers
What is the main purpose of hedging with derivatives?
What is the main purpose of hedging with derivatives?
- To eliminate counterparty risk
- To increase leverage on holdings
- To speculate on the price of the commodity
- To manage risk and protect profits (correct)
Where are derivatives commonly traded?
Where are derivatives commonly traded?
- Exclusively through brokerages
- Exclusively on regulated exchanges
- Both on exchanges and OTC (correct)
- Only between private parties
What is a potential risk associated with OTC-traded derivatives?
What is a potential risk associated with OTC-traded derivatives?
- Regulatory intervention
- Lack of liquidity
- Market volatility
- Counterparty risk (correct)
How does a currency derivative help in hedging risk?
How does a currency derivative help in hedging risk?
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Which exchange is mentioned as one of the world's largest derivatives exchanges?
Which exchange is mentioned as one of the world's largest derivatives exchanges?
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