CFA Practice Question

There are 206 practice questions for this study session.

CFA Practice Question

Imagine a fictional derivative that can, when combined with certain other financial instruments, pay $100,000 each time a Democrat is elected President of the U.S. This fictional derivative has ______.
A. decreased market completeness because the payoff described can only be achieved in combination with other financial instruments
B. left market completeness unchanged because the payoff described can only be achieved in combination with other financial instruments
C. increased market completeness even though the payoff described can only be achieved in combination with other financial instruments
Explanation: Since the addition of the imaginary derivative has made a payoff pattern possible where it was previously impossible, the derivative has made the market more complete.

User Contributed Comments 5

User Comment
poojacfa Purposes of derivative markets: Price discovery, Risk management, Market completeness, Market efficiency & Trading efficiency.
smit0745 how do we know it was previously impossible?
gulfa99 Complete market.right..thats why we see most of the US and european banks collapsing. Banks without derivative open positions are million times better off.
ecj66 Ummm...misleading and fictional. Dems take money from you.
ctschro ecj66 - derivatives can be used for hedging
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