- CFA Exams
- CFA Level I Exam
- Topic 7. Derivatives
- Learning Module 3. Derivative Benefits, Risks, and Issuer and Investor Uses
- Subject 1. Derivative Benefits and Risks
CFA Practice Question
Derivatives contribute to market completeness by ______.
II. making it possible to mimic the payoffs of other existing fundamental instruments
III. offering arbitrage opportunities
I. making it possible to achieve more different desired payoffs
II. making it possible to mimic the payoffs of other existing fundamental instruments
III. offering arbitrage opportunities
Correct Answer: I
User Contributed Comments 8
| User | Comment |
|---|---|
| dhiru | Why not II ? |
| dhiru | I guess, probably because II does not contribute to market completeness |
| bobert | Market Completeness: A complete market is a market in which any and all identifiable payoffs can be obtained by trading the securities available in the market. Given the above statement, if you can find an arbitrage opportunity, I would consider that a payoff, and that is done by trading securities. Why would that not be an answer then? |
| aakash1108 | Offering Aribtrage Opportunities is not an "Efficient Market". If the market is not Efficient, it is not complete. Arbitrage Opportunities is against EMH. |
| group | You are right Aakash, offering arbitrage opportunities is not an Efficient Market and if the market is not efficient it is not complete... |
| cong | I is the right answer because II and III are not directly relevant to market completeness. |
| JakeZ | II contributes to Market Efficiency tho donno if thats part of COMPLETENESS... |
| ankurwa10 | question is, are complete markets efficient too ? I think not, but then what do i know. |