"Derivative"exercise:Examples of derivatives

B is correct. For riskless arbitrage to exist, the underlying security that can be arbitraged may be either a financial or a non-financial security.

A is incorrect. For riskless arbitrage to exist, the underlying security must be able to be short sold.

C is incorrect. For riskless arbitrage to exist, the underlying security must be relatively liquid so it is easy to buy and sell at a low cost.

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.