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Which of the following is not a financial derivative?a.stockb.futurec.optiond.forward contract

Question

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Solution

To determine which of the options is not a financial derivative, we need to understand what a financial derivative is. A financial derivative is a contract that derives its value from an underlying asset or reference rate. It is used to speculate on or hedge against future price movements of the underlying asset.

Now, let's analyze each option:

a. Stock: A stock represents ownership in a company and is not considered a financial derivative. It is a direct investment in the company's equity.

b. Future: A future is a financial derivative contract that obligates the buyer to purchase an underlying asset at a predetermined price and time in the future. It is used to speculate on or hedge against future price movements.

c. Option: An option is a financial derivative contract that gives the buyer the right, but not the obligation, to buy (call option) or sell (put option) an underlying asset at a predetermined price within a specified period. Options are commonly used for speculation, hedging, and risk management.

d. Forward contract: A forward contract is a financial derivative contract between two parties to buy or sell an underlying asset at a predetermined price on a future date. It is similar to a future contract but is typically customized and traded over-the-counter (OTC).

Based on the above analysis, the option that is not a financial derivative is option a. Stock.

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