Why are options referred to as derivative instruments?
What will be an ideal response?
Unlike underlying instruments, such as stocks and bonds, derivatives are instruments where the value and the payoff of the instrument are derived from the behavior of the underlying asset. As an example, suppose Tom has a contract allowing him to purchase 100 shares of stock in ABC company at a price of $10 per share six months from now. The value of his option contract will increase as the actual price of the ABC stock (the underlying instrument) rises and exceeds $10 per share.
You might also like to view...
Sellers who charge different prices to different customers can increase their net revenue
A) by forcing some customers to pay more for the product than it is worth to them. B) by getting high-price customers in effect to subsidize sales to low-price customers. C) if the demand of some customers for the product enables the sellers to build volume by selling at prices below marginal cost. D) if they can prevent customers from reselling to one another.
Define a variable and give two examples that would apply to economics
What will be an ideal response?
The notion that in a world with n markets, if n - 1 are in equilibrium, so must the nth, is known as
A) the uncertainty principle. B) the first law of international trade. C) Walras Law. D) Friedman Law.
Money is channeled from savers to borrowers by banks and other _______.
Fill in the blank(s) with the appropriate word(s).