The purpose of derivatives is to:
A) increase the risk so the return is larger.
B) eliminate risk for both parties in the transaction.
C) postpone the risk for both parties in the transaction.
D) transfer the risk from one person to another.

Question

Quizplus · Accepted Answer

Derivatives are financial instruments that are used to transfer the risk from one person to another. By buying or selling a derivative, both parties can mitigate or hedge their risk exposure. Derivatives do not eliminate or postpone risk, but rather allow for its transfer to another party who is willing to take on that risk in exchange for a potential reward.

The Purpose of Derivatives Is To