Which of the following is NOT an example of derivative security?
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A. B. C. D.D
The correct answer is D. Bonds.
A derivative security is a financial contract whose value is derived from an underlying asset or group of assets. The value of the derivative security changes based on the price movements of the underlying asset. Examples of derivative securities include futures, options, and swaps.
Futures are agreements to buy or sell an underlying asset at a specific price and time in the future. Futures contracts are standardized and traded on exchanges, and they are often used to hedge risk or speculate on price movements.
Options give the holder the right, but not the obligation, to buy or sell an underlying asset at a specific price and time in the future. Options can be used for hedging, speculation, or generating income.
Swaps are agreements between two parties to exchange cash flows based on different financial instruments or indices. Swaps are often used to manage interest rate, currency, or credit risk.
Bonds, on the other hand, are not considered derivative securities. Bonds are debt securities that represent a loan made by an investor to a borrower, usually a corporation or government entity. The value of a bond is determined by the creditworthiness of the issuer and the prevailing interest rates in the market.
In summary, while futures, options, and swaps are all examples of derivative securities, bonds are not.