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

Question

Quizplus · Accepted Answer

A derivative's definition includes that its value changes in response to an underlying variable (I), it requires no or minimal initial investment (III), and it is settled at a future date (IV). Settlement on a net basis (II) is not a requirement for all derivatives.

The Definition of a Derivative Requires Which of the Following