n NISM Certifications
X NISM Series X
Medium

What is the primary purpose of derivatives?

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

Options

  1. A

    Increase profits through leverage

  2. Transfer risks between parties

    Correct answer

  3. C

    Divert retail investors from cash markets

  4. D

    Generate abnormal profits

Why this is the answer

Derivatives are mainly used as risk management tools to transfer exposure and hedge against price fluctuations.

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