Canadian Securities Course (CSC) Level 1 Practice Exam

What type of financials underlie derivative contracts?

1. Grains and oil seeds.

2. Energy products.

3. Equities, Interest rates, and currencies.

4. Forest, fiber, and food.

The correct answer is: Equities, Interest rates, and currencies.

Derivative contracts are financial instruments whose values are derived from the performance of an underlying entity, which can be an asset, index, or interest rate. The most common types of financials that underlie derivative contracts are equities (stocks), interest rates (e.g., bonds, loans), and currencies (foreign exchange rates). These underlying assets provide the basis for the value and risk profile of the derivative contract. On the other hand, options A, B, and D are not typically associated with the financials that underlie derivative contracts.