A derivative is any financial instrument whose value depends on the:
A)extent of asset diversification.
B)expected rate of inflation.
C)purchasing power of the people.
D)value of an underlying asset.

Question

Quizplus · Accepted Answer

A derivative is a financial contract whose value is derived from an underlying asset, such as a stock, bond, commodity, currency, or market index. Therefore, the value of a derivative depends on the price movements of the underlying asset. For example, a futures contract is a derivative that allows two parties to trade a specified amount of an underlying asset at a predetermined price and date in the future. The price of the futures contract will fluctuate based on the price of the underlying asset. Therefore, the correct answer is (D) value of an underlying asset. The other choices, such as asset diversification, inflation, and purchasing power, may affect the value of assets or securities, but they are not the defining characteristics of a derivative.

A Derivative Is Any Financial Instrument Whose Value Depends on The