The Basic Difference Between Speculators and Hedgers in Futures Contracts

question 59

Multiple Choice

The basic difference between speculators and hedgers in futures contracts is that speculators:

• A)will profit regardless of the direction of price change.
• B)are not protecting their commodity holdings through an offsetting transaction.
• C)are concerned only with long-term price movements.
• D)take a position in more than one commodity at a time.

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Definitions:

Discount Rate

The interest rate charged to commercial banks and other depository institutions on loans they receive from their regional Federal Reserve Bank's lending facility.

Initial Cost

The total expense incurred to acquire an asset or product, including the purchase price and all related fees and taxes, but excluding any subsequent maintenance or operational costs.

Cash Inflows

Money being received by a business or individual, from various sources like sales, investments, or loans.

Option To Wait

The flexibility embedded in investment decisions allowing investors to delay making an investment to obtain more information.