which of the following statement is true with regard to financial derivatives? a. forward contract is...

which of the following statement is true with regard to financial derivatives?

a. forward contract is a forward-based derivative that obligates two parties to trade a series of cash flows at specified future settlement dates.

b. due to their extreme risk, extensive purchase of derivatives are more likely to occur when markets are stable.

c. use of derivatives should eliminate risk.

d. using derivatives divides financial risk into separate elements that can be exchanged between entities.

Solutions

Expert Solution

1. False, because it is a contract in which customer agrees to buy or sell a specified currency on a specified future date at specified rate agreed upon today.

2. False, because the mark-to-market process makes pricing derivatives more likely to accurately reflect current value.

3. False, because using derivatives, to hedge some risk only.

4. True, using derivatives divides financial risk into separate elements that can be exchanged between entities.

jeff jeffy answered 1 year ago

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