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With reference to Derivatives trading, consider the following statements:
- Derivatives are short-term financial contracts that are bought and sold in the market.
- The derivatives can be traded in futures and options on the exchanges.
Which of the statements given above is/are correct?
- a)1 Only
- b)2 Only
- c)Both 1 and 2
- d)Neither 1 nor 2
Correct answer is option 'C'. Can you explain this answer?
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Most Upvoted Answer
With reference to Derivatives trading, consider the following statemen...
The derivatives are short-term financial contracts that are bought and sold in the market.
- Profits are made in the derivatives trade by predicting the price movements of the asset that underlies the contract.
- The derivatives trade can be in futures and options.
- In a futures contract, a supplier pledges to sell a certain quantity at a fixed price at a future date.
- An option is a derivative contract which gives the buyer (the owner or holder of the option) the right, but not the obligation, to buy or sell an underlying asset.
- Farmers can put fixed amounts of their products, which fit the quality standards of the exchange, to be sold at a fixed price — almost like price insurance.
- These contracts can be exited by either the producer or the trader by paying a margin price to the exchange.
- Agricultural commodities like cotton, paddy, soya bean, soya oil, mustard seed, etc., are traded on the National Commodities and Derivatives Exchange (NCDEX) and the Multi Commodity Exchange (MCX).
Hence both statements are correct.
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With reference to Derivatives trading, consider the following statemen...
Answer:
Derivatives trading refers to the buying and selling of financial contracts, known as derivatives, in the market. These contracts derive their value from an underlying asset, such as stocks, bonds, commodities, or currencies. The two most common types of derivatives are futures and options. In this context, let's analyze the given statements.
This statement is correct. Derivatives are financial contracts with a predetermined value, which are bought and sold in the market. They are designed to provide investors with opportunities for speculation, hedging, and risk management. Unlike stocks or bonds, which represent ownership or debt in a company, derivatives have no inherent value. Instead, their value is derived from the underlying asset. Derivatives can be used to take positions on short-term price movements or to hedge against potential losses.
This statement is correct. Futures and options are two common types of derivatives that can be traded on exchanges.
Futures:
Futures contracts obligate the buyer to purchase an asset or the seller to sell an asset at a future date and at a predetermined price. These contracts are standardized and traded on organized exchanges, such as the Chicago Mercantile Exchange (CME). Futures contracts are commonly used by commodity producers, consumers, and traders to hedge against price fluctuations.
Options:
Options contracts give the buyer the right, but not the obligation, to buy (call option) or sell (put option) an underlying asset at a predetermined price within a specific period. Options are also traded on exchanges and can be used for speculation, hedging, or income generation.
In conclusion, both statements are correct. Derivatives are short-term financial contracts that can be bought and sold in the market. They are commonly traded in futures and options on exchanges, providing investors with opportunities for speculation and risk management.
Introduction:
Derivatives trading refers to the buying and selling of financial contracts, known as derivatives, in the market. These contracts derive their value from an underlying asset, such as stocks, bonds, commodities, or currencies. The two most common types of derivatives are futures and options. In this context, let's analyze the given statements.
Statement 1: Derivatives are short-term financial contracts that are bought and sold in the market.
This statement is correct. Derivatives are financial contracts with a predetermined value, which are bought and sold in the market. They are designed to provide investors with opportunities for speculation, hedging, and risk management. Unlike stocks or bonds, which represent ownership or debt in a company, derivatives have no inherent value. Instead, their value is derived from the underlying asset. Derivatives can be used to take positions on short-term price movements or to hedge against potential losses.
Statement 2: The derivatives can be traded in futures and options on the exchanges.
This statement is correct. Futures and options are two common types of derivatives that can be traded on exchanges.
Futures:
Futures contracts obligate the buyer to purchase an asset or the seller to sell an asset at a future date and at a predetermined price. These contracts are standardized and traded on organized exchanges, such as the Chicago Mercantile Exchange (CME). Futures contracts are commonly used by commodity producers, consumers, and traders to hedge against price fluctuations.
Options:
Options contracts give the buyer the right, but not the obligation, to buy (call option) or sell (put option) an underlying asset at a predetermined price within a specific period. Options are also traded on exchanges and can be used for speculation, hedging, or income generation.
Conclusion:
In conclusion, both statements are correct. Derivatives are short-term financial contracts that can be bought and sold in the market. They are commonly traded in futures and options on exchanges, providing investors with opportunities for speculation and risk management.
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With reference to Derivatives trading, consider the following statements: Derivatives are short-term financial contracts that are bought and sold in the market. The derivatives can be traded in futures and options on the exchanges.Which of the statements given above is/are correct?a)1 Onlyb)2 Onlyc)Both 1 and 2d)Neither 1 nor 2Correct answer is option 'C'. Can you explain this answer?
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