Please explain option B. I didn’t understood.
Thank you
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Think of Fundamental value as true value. Since entering into derivatives is easier as compared to spot market because of more liquidity, less costs etc. The fundamental value or the true value is reflected more quickly in the derivatives market rather than the Spot market.
What does it mean after restored in underlying market?
The correct language should have been restored BEFORE not AFTER. Before restored in underlying market means whatever information is there first reflects in the spot market and then in the derivatives market which is not true. Rather the inverse is true.
So if a correct statement would have to be made, it would be
Derivatives tend to reflect the fundamental value BEFORE it is restored in the underlying market.
Is my understanding correct?
Yes it reflects before.
Thanks for the clarification!