Callas Corporation Limited buys an option that entitles it to purchase 2000 shares in Maria Limited at $5 per share at any time in the next 3 months. The derivative financial instrument in this transaction is the:
A) shares in Callas Corporation Limited;
B) shares in Maria Limited;
C) price of the shares in Maria Limited after 3 months have elapsed;
D) option priced at $5.

Question

Quizplus · Accepted Answer

The derivative financial instrument in this transaction is the option to purchase the 2000 shares in Maria Limited at the specified price within the specified time frame. The option itself is the derivative financial instrument, not the shares in either company or the price of the shares after the 3 months have elapsed.

Callas Corporation Limited Buys an Option That Entitles It to Purchase