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Questions and Answers
Which one of the following accurately describes a derivative?
Which one of the following accurately describes a derivative?
- A financial instrument that transforms the performance of the underlying asset
- A financial instrument that derives its value from the performance of an underlying asset (correct)
- A financial instrument that exchanges cash flows in the present based on an underlying value
- A financial instrument that directly passes through the returns of the underlying asset
What is the underlying asset in a derivative?
What is the underlying asset in a derivative?
- The asset that exchanges cash flows in the present
- The asset that derives its value from the performance of the derivative
- The asset that directly passes through the returns of the derivative
- The asset that the derivative is based on (correct)
What does a forward contract allow market participants to do?
What does a forward contract allow market participants to do?
- Exchange cash flows in the future based on an underlying value (correct)
- Transform the performance of the underlying asset
- Pass through the returns of the underlying asset
- Transfer the price risk of underlying assets to a second party
In the example given in Exhibit 1, what does AMY Investments agree to deliver?
In the example given in Exhibit 1, what does AMY Investments agree to deliver?
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What is the purpose of a derivative?
What is the purpose of a derivative?
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