Which of the following is not a distinguishing characteristic of a derivative instrument?
A) Derivative instruments have terms that require or permit net settlement.
B) Derivative instruments have a low initial net investment.
C) Derivative instruments are highly effective throughout their term.
D) Derivative instruments have one or more underlyings and notional amounts.

Question

Quizplus · Accepted Answer

The other three options are all key characteristics of derivative instruments. However, while derivatives are designed to be highly effective, they may not always perform as expected or may lose effectiveness over time, particularly if market conditions change. Therefore, the certainty of effectiveness is not a distinguishing characteristic of a derivative instrument.

Which of the Following Is Not a Distinguishing Characteristic of a Derivative