Which of the following statements regarding derivative securities is incorrect ?

Question

Which of the following statements regarding derivative securities is incorrect?

A. Derivative securities are sophisticated and dynamic risk management instruments and have no direct bearing on the firm’s financing (stock or bond financing).

B. All derivative securities are traded in organized exchanges.

C. Typical types of derivative securities include forward contracts, futures, options, and swaps.

D. The main purposes of using derivative securities are hedging (risk management) and speculation (active risk-taking investment).

Explanation / Answer

The correct answer is B

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All derivatives are traded on organized exchanges except forward contract.

Forward contracts are traded over the counter.

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