Canadian Securities Course (CSC) Practice Exam

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How are gains and losses typically handled in exchange-traded derivatives?

  1. Settled at the beginning of the contract

  2. Marked to market

  3. Delayed settlement

  4. Carried over to the next contract

The correct answer is: Marked to market

Marking to market is the process of adjusting the value of a security or derivative to reflect its current market value. This is typically how gains and losses are handled in exchange-traded derivatives. Option A, settling at the beginning of the contract, would not accurately reflect the current market value and would not be practical for ongoing contract changes. Option C, delayed settlement, would postpone the resolution of gains and losses and may not accurately reflect the current market value at the time of settlement. Option D, carrying over to the next contract, would also not accurately reflect the current market value and may result in discrepancies between contracts. Marking to market is the most accurate and efficient method for handling gains and losses in exchange-traded derivatives.

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