The Main Disadvantage of Futures Contracts as Compared to Options

question 113

Multiple Choice

The main disadvantage of futures contracts as compared to options on futures contracts is that futures

• A) remove the possibility of gains.
• B) increase the transactions cost.
• C) are not as effective a hedge.
• D) do not remove the possibility of losses.

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Definitions:

Depreciation

The process of allocating the cost of a tangible asset over its useful life, representing how much of the asset's value has been used up.

Accounts Payable

A liability to a creditor, usually for purchases of goods and services.

Net Working Capital

Net Working Capital is a financial metric that measures a company's ability to meet its short-term obligations with its short-term assets.

Current Assets

Assets that are expected to be converted into cash or used up within one year or one business cycle, whichever is longer, such as cash, inventory, and receivables.