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Questions and Answers
What is a derivative in the context of finance?
What is a derivative in the context of finance?
- A fixed interest rate investment
- A direct ownership of shares in a company
- A speculative investment in commodities
- A financial contract whose value is based on the price of an underlying asset (correct)
How do derivatives allow investors to speculate on price movements?
How do derivatives allow investors to speculate on price movements?
- By directly owning the shares of the underlying asset
- By entering into a contract based on the asset's value changes (correct)
- By avoiding any financial contracts
- By relying on fixed interest rates
What determines the profit or loss for investors in derivatives?
What determines the profit or loss for investors in derivatives?
- The number of shares owned
- How the asset's value changes (correct)
- The company's reputation
- The fixed interest rate
If an investor thinks that the price of shares of HDFC Bank may rise in the future, how can they speculate on this price movement without owning shares of HDFC Bank?
If an investor thinks that the price of shares of HDFC Bank may rise in the future, how can they speculate on this price movement without owning shares of HDFC Bank?
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What is the primary function of an equity derivative in finance?
What is the primary function of an equity derivative in finance?
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