CFA Practice Question

There are 206 practice questions for this study session.

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.
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