In a derivative transaction:
A) the dollar amount of the transaction increases as the contract date approaches.
B) the risk is less than if actually purchasing the underlying asset.
C) what one person gains is what the other person loses.
D) there is always a futures contract.

Question

Quizplus · Accepted Answer

In a derivative transaction, one person gains only if the other person loses. It's a zero-sum game where the profit of one party is equal to the loss of the counterparty. This is because derivatives are contracts that derive their value from an underlying asset or security, and their value changes based on the price movement of the underlying asset. Therefore, the profit of one party in a derivative transaction is always mirrored by the loss of the other party. The other options (A, B, D) are incorrect because not all derivatives are futures contracts, the dollar amount of the transaction can increase or decrease based on market conditions, and the level of risk can vary depending on the type of derivative used.

In a Derivative Transaction