The best deﬁnition of derivative securities is:
A) An insurance policy that ensures underlying assets are secured.
B) Investment products whose value derives from the price of another, underlying, asset.
C) Financial markets where long-term debt and equity securities are bought and sold.
D) Creation of new securities or ﬁnancial processes.
E) A compensation package for managers that ties their salary to the ﬁrm's share price.

Question

Quizplus · Accepted Answer

Derivative securities are investment products whose value is derived from the price of underlying assets such as stocks, bonds, commodities, or currencies. Examples of derivative securities include options, futures, forwards, swaps, and credit derivatives. These instruments provide investors with a way to manage risk, speculate on price movements, or hedge against unforeseen events. Unlike direct ownership of assets, derivative securities offer leverage, liquidity, and flexibility, as well as the potential for high returns but also significant losses.

The Best Deﬁnition of Derivative Securities Is