BUISENESS MANAGEMENT
RISK MANAGEMENT
|
Question
[CLICK ON ANY CHOICE TO KNOW THE RIGHT ANSWER]
|
|
|
rollovers until the contract expiration date
|
|
|
investors can use futures contracts to speculate on the direction of an asset’s price
|
|
|
Speculators can lose, lose more money than the initial deposit due to the futures contract using round
|
|
|
Investing in a futures contract can be daunting for an investor
|
Detailed explanation-1: -A futures contract allows an investor to speculate on the direction of a security, commodity, or financial instrument, either long or short, using leverage. Futures are also often used to hedge the price movement of the underlying asset to help prevent losses from unfavorable price changes.
Detailed explanation-2: -The most common advantages include easy pricing, high liquidity, and risk hedging. The major disadvantages include no control over future events, price fluctuations, and the potential reduction in asset prices as the expiration date approaches.
Detailed explanation-3: -Explain why a futures contract can be used for either speculation or hedging. If an investor has an exposure to the price of an asset, he or she can hedge with futures contracts. If the investor will gain when the price decreases and lose when the price increases, a long futures position will hedge the risk.