CSC2 Exam Dumps | What financial instrument is derived from the value of an underlying asset?

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Question 23/86

What financial instrument is derived from the value of an underlying asset?

A. Real estate investment trust

B. Forward contract

C. Preferred share.

D. Inflation linked bond

Correct Answer: B

A forward contract is a derivative instrument whose value is derived from the value of an underlying asset, such as commodities, currencies, or financial instruments. It is a customized agreement between two parties to buy or sell an asset at a future date at a specified price.
* A. Real estate investment trust: A REIT is an equity instrument tied to real estate assets, not a derivative.
* C. Preferred share: A preferred share is an equity security with fixed dividends, not a derivative.
* D. Inflation-linked bond: These are fixed-income securities linked to inflation rates but are not considered derivatives.
Reference:CSC Volume 1, Chapter 10, "The Role of Derivatives - Forward Contracts" describes forwards as derivatives dependent on underlying assets.

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