Which One of the Following Statements Is Correct If a Speculator

question 55

Multiple Choice

Which one of the following statements is correct if a speculator short sells a commodity or financial futures contract?

• A) The speculator expects to profit from a decline in the price of the contract.
• B) The speculator stands to make an unlimited amount of profit since there is no limit to how high the price of the underlying commodity or financial instrument can rise.
• C) The speculator is hoping to gain some of the benefit derived from the volatile price while limiting his/her exposure to loss.
• D) The speculator may be hedging if the underlying commodity is not in the speculator's possession.

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Definitions:

Equilibrium Quantity

The amount of products or services available and sought after at the equilibrium price, where the quantity supplied matches the quantity demanded.

Demand Curve

A graphical representation showing the relationship between the price of a good or service and the quantity demanded by consumers.

Transaction Costs

Expenses incurred when buying or selling goods or services, including fees, charges, and other costs associated with the transfer of assets.

Exchange

The act of giving one thing and receiving another, especially of the same type or value, in return.