Which of the following statements best describe a derivative contract?
A)Contractual commitments to make a loan up to a stated amount at a given interest rate in the future.
B)Contingent guarantees sold by an FI to underwrite the performance of the buyer of the guaranty.
C)Agreement between two parties to exchange a standard quantity of an asset at a predetermined price at a specified date in the future.
D)Trading in securities prior to their actual issue.
E)Loans originated by an FI and then sold to other investors with recourse.

Question

Quizplus · Accepted Answer

A derivative contract is an agreement between two parties to exchange a standard quantity of an asset at a predetermined price at a specified date in the future. This asset can be an underlying security, commodity, currency or even an interest rate. Derivatives are used to manage risks, speculate and hedge against fluctuations in the market. Examples of derivative contracts include options, futures, forwards, and swaps.

Which of the Following Statements Best Describe a Derivative Contract