- CFA Exams
- CFA Level I Exam
- Topic 7. Derivatives
- Learning Module 1. Derivative Instrument and Derivative Market Features
- Subject 1. Derivative Features and Underlyings
CFA Practice Question
Derivative securities are ______.
B. assets used to reduce long-term financial risk due to fundamental changes in the economy
C. assets that reduce short-run financial exposure due to uncertain prices or interest rates
D. financial assets that represent a claim on other assets
E. securities which eliminate the risk associated with price changes
A. assets that reduce exposure to price or rate fluctuations
B. assets used to reduce long-term financial risk due to fundamental changes in the economy
C. assets that reduce short-run financial exposure due to uncertain prices or interest rates
D. financial assets that represent a claim on other assets
E. securities which eliminate the risk associated with price changes
Correct Answer: D
User Contributed Comments 12
| User | Comment |
|---|---|
| szyrmer | so are most securities...hmm |
| bananabun | i would've thought it reduces short financial exposures. i interpreted "claim on other assets" as "securities on loans" |
| Target | Derivatives are assets that could be USED to reduce short run financial exposure but that doesn't mean they always do - which is what C implies (i.e., it says that they do) - but that's an aggressive statement |
| Bibhu | Very good question. |
| tanyak | reducing financial exposure is not the only goal of derivatives, they could also be used for speculation i.e. to gain instead of hedging |
| AlexYuen | You enter a derivative taking a specific position on future prices. Not when you are uncertain as the other ans suggested |
| ljamieson | ... financial instruments which 'derive' their price from other financial instruments. VIX options don't give you any claim to the volatility of the S&P. |
| magicchip | not a claim, but VIX is actually the percentage by which the market is expected to be either higher or lower in 12 months... +- so it's a volatility measure. |
| peteypete | It may not give you a claim on the volatility but it gives you a claim on the percentage movement off of which you can gian or lose. |
| johntan1979 | Underlying assets |
| To-be-CFA | Gotta look for an answer with a complete definition. |
| Mwito | Derivatives are financial contracts and not financial assets |