Question

What is the adverse effect regarding the use of derivatives?

a.

Large returns in adverse situations.

b.

Losses due to borrowing or leverage.

c.

Minimal impact on underlying asset prices.

d.

Reduction of potential profits.

Answer: (b).Losses due to borrowing or leverage. Explanation:The adverse effect with the use of derivatives, especially with leverage or borrowing, can result in large losses in adverse situations.

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Q. What is the adverse effect regarding the use of derivatives?

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