"Derivative"exercise:Option derivatives

A is correct. Although an exchange-traded fund derives its value from the underlying assets it holds, it does not transform the performance of those assets and so is not a derivative.

B is incorrect. A contract to sell Alphabet Inc.’s shares transforms the performance of the underlying shares of Alphabet Inc and is an example of an option derivative.

C is incorrect. A contract to buy Australian dollars transforms the performance of the underlying currency and is an example of a currency derivative.

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.