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.

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 can include contracts such as futures, options, forwards, and swaps. Options give the buyer the right but not the obligation to buy or sell an asset, while futures and forwards are agreements to buy or sell the underlying asset at a predetermined price in the future. Swaps involve the exchange of cash flows based on different interest rates or currencies.

Which of the Following Statements Best Describe a Derivative Contract