- CFA Exams
- CFA Level I Exam
- Study Session 16. Derivatives
- Reading 48. Derivative Markets and Instruments
- Subject 5. Purposes and Criticisms of Derivative Markets
CFA Practice Question
Imagine a fictional derivative that pays $100 on Christmas Day, but only if that day is a Sunday. Prior to introduction of this imaginary derivative, it was impossible to achieve this specific payoff. The new fictional derivative has ______.
A. increased market completeness
B. left market completeness unchanged
C. created an arbitrage opportunity
Explanation: Since the imaginary derivative offers a unique payoff pattern that was not previously available, it has made the market more complete.
User Contributed Comments 2
| User | Comment |
|---|---|
| chloebchau | new info add completeness |
| mikus | "Derivative pays on Christmas day if that day is Sunday" - In reality, no derivative transactions takes place on either holiday or Sunday; hence, market would be more complete if such derivative existed. |