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A derivative contract entered into for the purpose of earning a return is called a(n) ____ derivative.

User Jarandaf
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Final answer:

A derivative contract intended to earn a return through market fluctuations is known as a speculative derivative. These contracts are high-risk as they are based on market movements rather than hedging existing exposures.

Step-by-step explanation:

A derivative contract entered into for the purpose of earning a return is called a speculative derivative. Derivatives can be used for various purposes including hedging (to mitigate risk), arbitrage (to take advantage of price discrepancies), and speculation (to make a profit from market movements). A speculative derivative does not involve hedging an underlying exposure; instead, it involves taking a position in the expectation of making a profit from market fluctuations. The value of the derivative is derived from the performance of assets such as currencies, commodities, stocks, or interest rates. Speculative derivatives carry a higher level of risk as they are based on the assumption that the market will move in a favorable direction for the speculator.

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