The definition of a derivative requires which of the following characteristics to be met?
I. Its value must change in response to a change in an underlying variable such as a specified interest rate, foreign exchange rate, credit rating or commodity price.
II. It must require no initial net investment or an additional net investment that is smaller than would be required for other types of contracts with similar responses to changes in market factors.
III. It is to be settled at a future date.
IV. It must be settled on a net basis.
A) I, III and IV.
B) I, II and III
C) I, II and IV.
D) II, III and IV.

Question

Quizplus · Accepted Answer

The definition of a derivative includes characteristics I (its value changes in response to changes in an underlying variable), II (it requires no initial net investment or a smaller net investment than other types of contracts), and III (it is settled at a future date). The requirement to be settled on a net basis (IV) is not a defining characteristic of all derivatives, as some derivatives can be settled by means other than net settlement.

The Definition of a Derivative Requires Which of the Following