CFA Practice Question

There are 206 practice questions for this study session.

CFA Practice Question

Financial derivatives contribute to market completeness by ______.

A. reducing transaction costs
B. increasing the number of possible payoffs
C. increasing the number of investors participating in the market
Correct Answer: B

Derivatives offer unique payoff patterns and can be combined with other instruments to create new and unique payoff patterns that did not exist before. As a result, derivatives allow markets to offer more possible payoff patterns and to become more complete.

User Contributed Comments 3

User Comment
Vikku Could someone pls elaborate with an example?
georgek the definition of market completeness

the answer elaborated is interesting as it also implied the reduction of txn costs given the combination with other instruments?
ankurwa10 What did i say in my comment to the previous question :P
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