Financial regulators in a European country are considering banning trading in highly complex derivative instruments that are not settled through a centralized clearinghouse.

Financial regulators in a European country are considering banning trading in highly complex derivative instruments that are not settled through a centralized clearinghouse.

This ban can result in:

I. The value of the country’s currency dropping

II. Counterparties involved in trading of these derivative instruments failing to fulfill their obligations

III. The business model relying on these instruments failing

IV. Certain activities becoming illegal
A . I, II
B . II, III
C . I, IV
D . II, III, IV

View Answer

Answer: D

Explanation:

Banning trading in highly complex derivative instruments that are not settled through a centralized clearinghouse can lead to several consequences:

Counterparties involved in trading these derivatives may fail to fulfill their obligations (II).

The business models that rely on these instruments may fail (III).

Certain activities that were previously legal may become illegal (IV).

The potential drop in the country’s currency value (I) is not a direct consequence of such a ban.