CFA CFA Level 1 CFA Level 1 Question of the Week – Derivatives

CFA Level 1 Question of the Week – Derivatives

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    • Matt_AnalystPrep
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        Sonia Basin works as a hedge fund manager at High-Yield Investments (HYIN). While talking to a colleague, Basin poses the following question:

        “How does the standardization of derivative investments and designated market makers help the trade of such securities?”

        The best answer to Basin’s question is that they:

        • A. increase liquidity and reduce the cost of liquidity.
        • B. guarantee the buying and selling of a derivative.
        • C. guarantee the price at which a derivative is traded.
      • Matt_AnalystPrep
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          The correct answer is B. 

          Through standardization and designated market makers, derivatives exchanges guarantee that derivatives can be bought and sold.

          The cornerstones of the exchange-traded derivatives market are the market makers and speculators. The market makers stand ready to buy at one price and sell at a higher price.

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