Why Would Any Firm or Individual Hedge Risk with Futures

question 76

Multiple Choice

Why would any firm or individual hedge risk with futures, which limit both losses and gains, when they could use options which only limit losses?

• A)Because with options, parties have both rights and obligations
• B)Because options cost very little
• C)Because futures cost very little
• D)Because with futures, one party only has rights while the other only has obligations

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Definitions:

Reasonable Value

The fair or market value of goods or services, as determined by considering the costs, demand, and any other factor relevant to an exchange.

Necessary

In legal and philosophical terms, necessary refers to something required, indispensable, or absolutely needed to achieve a certain outcome or fulfill a condition.

Rescission

The process of formally terminating a contract, returning all involved parties to their pre-contractual state, often due to mistakes, fraud, or misrepresentation.

Punitive Damages

Compensation awarded to a plaintiff beyond actual damages, intended to punish the defendant for particularly harmful actions and deter similar future conduct.