Derivative securities can be used
A) by investors in the same way as the underlying security.
B) to modify the risk and expected return characteristics of existing investment portfolios.
C) to duplicate cash flow patterns for arbitrage opportunities.
D) to protect against potential price declines.
E) All of these are correct.

Question

Quizplus · Accepted Answer

All of the choices are correct. Derivative securities can be used by investors in the same way as the underlying security, to modify the risk and expected return characteristics of existing investment portfolios, to duplicate cash flow patterns for arbitrage opportunities, and to protect against potential price declines.

Derivative Securities Can Be Used