Question

Which of the following statements are true about derivatives? I. Derivatives are securities whose payoff is linked to another security. The payoff is never assured with certainty. II. A swap is a derivative instrument between counterparties that only exchanges a series of cash flows for specific time period at specific intervals; notionals are never swapped. III. Notionals are standardized and tradeable derivatives. IV. All derivatives have potential outcomes which may be unfavorable to one of the parties. V. One of the counterparties will always have off-balance-sheet liability risk.

Answer 1

Answer: i, ii, iii, iv & v are correct.

Explanation: