Question
A trader buys the underlying asset and borrows the purchase price at the risk-free rate to match a long forward payoff. What concept is illustrated?
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Answer
Replication.
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Question
An investor buys or sells CDS protection to express a credit view without trading the bonds. Is this primarily obtaining exposure, hedging, or arbitrage?
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Answer
Obtaining credit exposure.
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Question
An investor uses futures or a total return swap to gain equity exposure without buying the underlying securities. What investor use is this?
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Answer
Obtaining exposure efficiently.
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Question
Why do derivatives improve operational efficiency for portfolio investors seeking broad market exposure?
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Answer
They avoid trading many cash securities and lower transaction costs.
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