1. The payoffs for financial derivatives are linked toA. securitiesthat will be issued in the futureB. the volatility of interest ratesC. previously issued securitiesD. government regulations specifying allowable rates of return. AnswerC. previously issued securities 2. Financial DerivativesincludeA. StocksB. BondsC. FuturesD. None of these AnswerC. Futures 3. By hedging Portfolio a bank managerA. Reducesinterest rate…