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CFA Level 1 Question of the Week - Derivatives

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:
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CFA Level 1 Question of the Week - Derivatives 6 votes

A. increase liquidity and reduce the cost of liquidity.
33% 2 votes
B. guarantee the buying and selling of a derivative.
33% 2 votes
C. guarantee the price at which a derivative is traded.
33% 2 votes

Comments

  • Matt_AnalystPrepMatt_AnalystPrep MontrealPosts: 106 Associate
    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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