Financial instrument whose return is derived from the return on another instrument is known as a (n):
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A. B. C. D.A
The correct answer to the question is A. Derivative security.
A derivative security is a financial instrument whose value is derived from the value of another financial instrument, such as stocks, bonds, commodities, currencies, or market indices. The value of a derivative security changes in response to changes in the underlying asset's price, interest rate, or other economic variables.
Derivative securities can be used for a variety of purposes, including hedging against risk, speculating on future price movements, or gaining exposure to an asset class without having to own the underlying asset directly.
Examples of derivative securities include options, futures, swaps, and forwards. For instance, a call option on a stock gives the holder the right, but not the obligation, to purchase the stock at a predetermined price (the strike price) on or before a specific date (the expiration date). The value of the call option is derived from the value of the underlying stock.
In summary, a financial instrument whose return is derived from the return on another instrument is known as a derivative security. This type of security can be used for various purposes and can take the form of options, futures, swaps, or forwards.