4. Background on derivathves Aa Aa Derivatives trading has been popular since th

Question

4. Background on derivathves Aa Aa Derivatives trading has been popular since the futures market for wheat was established. Since then, traders brokers, and speaulabors have been involved in transactions involving derivatives, leading to the evolution of the derivatives markets. Based on your understanding of the derivatives markets, answer the following questions. occur when aggregate risk can be reduced by derivatives transactions between counterparties which of the following are reasons why the derivatives markets have grown more rapidly than any other major market in recent years? Check all that apply Reason Analytical techniques have been developed that have made it easier to establish fair and transparent prices Computers and electronics have made it easier for the markets' counterparties to work with each other. Globalization has increased both the importance of the currency markets and the need to reduce theD exchange rate risks associated with global trade. After the 2003 financial crisis in the United States, it became legal for institutional investors to participate in the derivatives markets.

Explanation / Answer

4) The correct choice is Natural hedges

Explanation : - Natural hedges are defined as situations  in which aggregate risk can be reduced by derivatives transactions between two parties known as counterparties.

5) The correct choice are Option 1, 2 and 3

Explanation :- A number of factors has contributed to the explosive growth of derivative markets that include the availability of cheap computing power. The development of black scholes model and other complex models for pricing the derivative instruments and businesses at the same time becoming more global in their activities.

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