The Derivative Business Analyst Test

Derivatives are contracts that involve two parties. These contracts are agreements between a buyer and a seller, where the buyer agrees to purchase an asset at a future date and the seller agrees to provide that asset at the agreed-upon price. These contracts are commonly used in financial markets to speculate on price movements, hedge against risks, or gain exposure to different asset classes. Therefore, the correct answer is two parties.

Financial derivatives are financial instruments that derive their value from an underlying asset or group of assets. They are used to manage risk or speculate on future price movements. Futures, options, and forwards are all examples of financial derivatives as they involve agreements to buy or sell assets at a future date and predetermined price. However, stocks are not considered derivatives because they represent ownership in a company and their value is not derived from another asset.

Equity trading can be performed by both the owner of the shares and an agent authorized to buy and sell on behalf of the shareholder. This means that individuals who own shares in a company can directly engage in equity trading, as well as appoint an agent to carry out trading activities on their behalf. Both options allow for active participation in the buying and selling of equity shares.

To access the stock market, stock speculators usually need a stockbroker. A stockbroker is a licensed professional who acts as an intermediary between investors and the stock market. They help investors buy and sell stocks, provide investment advice, and execute trades on their behalf. Stockbrokers have access to market research, analysis, and expertise, which enables them to guide speculators in making informed investment decisions. They also ensure compliance with regulations and help investors navigate the complexities of the stock market. Therefore, a stockbroker is essential for stock speculators to participate in the stock market effectively.

Standard Settlement Instructions (SSIs) are a set of guidelines and information used in the financial industry to facilitate the settlement of securities transactions. SSIs provide details about how a trade should be settled, including the account numbers, custodian information, and other relevant instructions. This helps to ensure that the settlement process is smooth and efficient, reducing the risk of errors or delays. SSIs are essential for accurate and timely processing of trades, and they are used by financial institutions, custodians, and other market participants.

Options do not give the buyer an obligation to buy or sell an underlying asset. Instead, they give the buyer the right, but not the obligation, to buy or sell the underlying asset at a specific price within a specified period of time. Therefore, this statement is untrue.

An interest-rate forward contract is an agreement between two parties to buy or sell a debt instrument at a future date at a predetermined price. The features of an interest-rate forward contract typically include the specification of the actual debt instrument, the price on the debt instrument, and the amount of the debt instrument. However, the specification of the place of transaction is not a feature of an interest-rate forward contract. The contract does not specify where the transaction will take place, as it can be conducted electronically or through a financial institution.

Financial futures were introduced in 1972. This marked a significant development in the financial industry, as it allowed investors to speculate on future prices of financial instruments such as currencies, interest rates, and commodities. The introduction of financial futures provided a new way for investors to manage risk and make profit through hedging and speculating on price movements. This innovation has since become an integral part of the global financial markets, enabling participants to trade and manage their exposure to various financial assets.

A forward contract is a non-standardized contract. This means that the terms and conditions of the contract are negotiated between the two parties involved, rather than being standardized and regulated by a central exchange. This allows for more flexibility in terms of the underlying asset, quantity, delivery date, and settlement terms. Unlike standardized contracts, such as futures contracts, forward contracts are typically customized to meet the specific needs of the parties involved.

Eugene Fama is the correct answer because he is the economist who developed the efficient-market hypothesis (EMH). The EMH states that financial markets are efficient and that it is impossible to consistently achieve above-average returns through trading or investing based on publicly available information. Fama's research on this theory has had a significant impact on the field of finance and has been widely studied and debated by economists and investors alike.