Certified Anti-Money Laundering Specialist Certification (CAMS) Practice Exam

Which of the following are common types of derivatives?

1. Stocks and bonds

2. Futures contracts and options

3. Mutual funds and ETFs

4. Cash-based investments

The correct answer is: Futures contracts and options

The correct choice focuses on futures contracts and options as common types of derivatives because these instruments derive their value from an underlying asset, such as commodities, stocks, or market indexes. Futures contracts are agreements to buy or sell an asset at a predetermined future date and price, while options give the holder the right, but not the obligation, to buy or sell an asset at a specified price before a certain expiration date. In contrast, the other options do not represent derivatives. Stocks and bonds are fundamental investment vehicles that represent ownership in a company or a loan to a corporation or government, respectively. Mutual funds and ETFs (Exchange-Traded Funds) are collective investment schemes that pool money from multiple investors to invest in a diversified portfolio; they also don't derive their value from other assets. Cash-based investments consist of direct investments in cash or cash equivalents and do not involve derivatives either. Thus, only futures contracts and options align with the definition of derivatives.