What are covered warrants?

Covered warrants are a type of derivative financial instrument that provides the holder the right, but not the obligation, to buy or sell a specific asset, usually shares, at a specified price before a predetermined expiration date.

The correct choice indicates that covered warrants give rights to shares that are not specific to a firm. This means that these warrants can be linked to shares of various companies or even to indices, making them versatile tools for investors who want to gain exposure to multiple underlying assets without being restricted to a single firm. This flexibility allows investors to capitalize on different market opportunities or hedge against market movements effectively.

The other options do not accurately describe the nature of covered warrants. For instance, the idea that covered warrants guarantee a fixed price at any future date is inaccurate, as they are time-sensitive instruments. The notion that covered warrants cannot be traded contradicts their nature, as these instruments are actively traded on exchanges. Finally, stating that covered warrants are issued exclusively by corporations misrepresents them; they can also be issued by other entities or financial institutions, enabling a broader market participation.