CFA Practice Question

There are 206 practice questions for this study session.

CFA Practice Question

Which of the following statements about the futures market are true?

I. Allows investors to hedge
II. Allows investors to speculate
III. Helps evaluate prices in the spot market
A. I and II
B. I and III
C. I, II and III
Explanation: Hedging is a process for lessening or eliminating risk by taking a position in the market opposite to your original position. For example, someone who owns wheat can sell a futures contract to protect against future price declines.

User Contributed Comments 5

User Comment
Stasya Does it really help to evaluate prices in a SPOT market?! i thought spot prices determine future prices
synner Yes because you want to find out over- or under valued stocks.
maurlamf Im with stasya on this one... How does it help find over- or under valued stocks?
reganbaha If everyone is selling at spot now and buying it back in the future...then that implies that underlying spot is overpriced.

If everyone is long at spot and short future then that implies that spot is undervalued.

That is how futures, help to evaluate spot markets.

nitinio rehga---you explanation makes sense.

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