n NISM Certifications
X NISM Series X
Medium

What increases the potential for large losses in derivative products?

Practice question from NISM Series XA- Investment Adviser (Level 1) Mock Test 4 — bank. The correct answer is highlighted below with a full explanation.

Options

  1. A

    High cost

  2. Leverage

    Correct answer

  3. C

    Complexity

  4. D

    Low liquidity

Why this is the answer

Derivatives are leveraged instruments, allowing investors to take large positions with a small margin, which magnifies both gains and losses and increases the risk of significant losses.

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