The primary federal banks regulators have established guidelines for derivatives usage at banks including:
I. banks must establish internal guidelines regarding hedging activity.
II. banks must establish trading limits.
III. banks are prohibited from using derivatives to speculate.
IV. banks must disclose large derivatives positions that may materially affect stakeholders in their financial statements.

Question

Quizplus · Accepted Answer

The primary federal banks regulators have established guidelines for derivatives usage at banks including the establishment of internal guidelines regarding hedging activity (I), the establishment of trading limits (II), and the disclosure of large derivatives positions that may materially affect stakeholders in their financial statements (IV). While banks are encouraged to use derivatives for hedging purposes, they are prohibited from using them for speculative purposes (III). Therefore, options B and E are both incorrect because they include choice III, which is incorrect. The correct answer is C, which includes options I, II, and IV only.

The Primary Federal Banks Regulators Have Established Guidelines for Derivatives