CFA Practice Question

There are 206 practice questions for this study session.

CFA Practice Question

Derivative securities are ______.

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
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