Which of the following statements about the counterparty to a risk management derivatives contract is correct?
A) The counterparty has the same expectations about future price movements as the risk manager.
B) The counterparty charges a fixed fee of $5 per contract.
C) The counterparty is in all likelihood a speculator.
D) All of the above are correct.

Question

Quizplus · Accepted Answer

The counterparty to a risk management derivatives contract is not necessarily a speculator, but may be a hedger or another risk manager. Option A does not necessarily hold true as the counterparty may have a different perception of future price movements than the risk manager. Option B is not necessarily correct as the fee charged by the counterparty may vary depending on the terms of the contract. Therefore, option C is the most accurate statement.

Which of the Following Statements About the Counterparty to a Risk