Derivative instruments exist because
A) they help shift risk from risk-averse investors to risk-takers.
B) they help in forming prices.
C) they have lower investment costs.
D) allow investors to hedge portfolio risk.
E) All of these are correct.

Question

Quizplus · Accepted Answer

Derivative instruments such as futures, options, and swaps help shift risk from risk-averse investors to risk-takers, facilitate price formation, and provide lower investment costs. They also allow investors to hedge portfolio risk. Therefore, option E is the correct answer as it includes all the above reasons for the existence of derivative instruments.

Derivative Instruments Exist Because