"Derivative"exercise:Derivative Instruments

C is correct. In efficient financial markets, risk-free arbitrage opportunities may exist temporarily, but their continuous exploitation will eliminate these arbitrage opportunities in the long run.

A is incorrect. Financial markets being efficient does not mean that risk-free arbitrage opportunities cannot exist.

B is incorrect. In efficient financial markets, any risk-free arbitrage opportunities will exist only temporarily because their continuous exploitation will result in these arbitrage opportunities being eliminated in the long run.

C is correct. Alternative investment strategies are more likely to include securities that trade in less liquid markets than securities that trade in relatively more liquid markets in which traditional, long-only investments trade.

A is incorrect because alternative investments generally have low return correlations with traditional asset markets, providing better diversification benefits.

B is incorrect because alternative investments are expected to produce higher returns (particularly on a risk-adjusted basis) than traditional markets, in part because they focus on less efficient markets