Derivatives can be used to reduce risk by hedging against potential losses, but they can also be a source of risk if used improperly. The financial crisis of 2007-2009 was exacerbated by the widespread use of complex derivatives such as mortgage-backed securities, which contributed to the collapse of the housing market and the subsequent economic downturn. Therefore, all of these responses are correct.

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Derivatives

Question 202

Multiple Choice

Derivatives

A) can be used to reduce risk.
B) can be a source of risk.
C) made the financial crisis of 2007-2009 worse than it otherwise would have been.
D) All of these responses are correct.

Correct Answer: