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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