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Section 45U(a) of the RBI Act, 1934 defines "derivative" for the purposes of RBI regulation. According to that definition, which feature is essential to a derivative?
Answer & Solution
Correct answer: A.
1. Section 45U(a) defines derivative for the RBI Act.
2. A derivative is an instrument to be settled at a future date.
3. Its value is derived from changes in an underlying such as interest rate, exchange rate, credit rating, credit index or price of securities.
4. The face-value, foreign-currency-only and exchange-only descriptions are not the Section 45U definition.
_Source: ICSI CS Executive Paper 7 (Economic, Business and Commercial Laws) — Lesson 1: Reserve Bank of India Act, 1934, pp. 8-21._
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