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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.
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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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