Why Are Most Futures Contracts Not Settled Through Delivery of the Product

question 69

Multiple Choice

Why are most futures contracts not settled through delivery of the product?

• A) Most contracts are settled through the margin account.
• B) Most contracts expire with neither party having an obligation to the other party.
• C) Most participants cancel their futures contracts through purchase of an option contract.
• D)It is easier and cheaper to settle in cash or by offset.

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Definitions:

Equally Likely

A situation where all outcomes of an experiment or event have the same probability of occurring.

Mutually Exclusive

Characteristics of events that cannot occur at the same time within a single experiment or trial.

Sample Space

The set of all possible outcomes or results in a probability experiment.

Random Experiment

An experiment or process for which the outcome cannot be predicted with certainty ahead of time, involving random variables.