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Futures & Options Video Lecture | NABARD Grade A & Grade B Preparation - Bank Exams
FAQs on Futures & Options Video Lecture - NABARD Grade A & Grade B Preparation - Bank Exams
| 1. What are Futures and Options in the context of financial markets? |  |
Ans.Futures and Options are types of financial derivatives that derive their value from an underlying asset, such as stocks, commodities, or indices. A Futures contract is an agreement to buy or sell an asset at a predetermined price on a specific future date. Options, on the other hand, give the buyer the right, but not the obligation, to buy (call option) or sell (put option) an asset at a specified price before or at expiration.
| 2. How do Futures and Options differ from each other? | |
Ans.The primary difference between Futures and Options lies in the obligations involved. Futures require the parties to fulfill the contract by buying or selling the underlying asset at expiration, regardless of the market price. In contrast, Options provide the buyer with the choice to execute the contract; they are not obligated to buy or sell if it is not favorable, thus limiting their potential loss to the premium paid for the option.
| 3. What are the advantages of trading in Futures and Options? | |
Ans.Trading in Futures and Options offers several advantages, including leverage, which allows traders to control large positions with a smaller amount of capital. They also provide flexibility in hedging against price volatility, enabling investors to protect their portfolios. Additionally, these instruments can be used for speculation, allowing traders to profit from price movements without owning the underlying asset.
| 4. What risks are associated with Futures and Options trading? | |
Ans.Trading Futures and Options carries significant risks, including market risk, where prices can move against a trader's position, leading to potential losses. Leverage can amplify these losses, as it allows traders to control larger positions than their initial investment. Additionally, the complexity of these instruments and their sensitivity to time decay (for options) can lead to unexpected outcomes if not managed properly.
| 5. What role do Futures and Options play in risk management for investors? | |
Ans.Futures and Options are essential tools for risk management, allowing investors to hedge against adverse price movements in their portfolios. By using these derivatives, investors can lock in prices for future transactions, reducing uncertainty. For example, a farmer can use Futures contracts to secure a price for their crops before harvest, while an investor can use Options to protect against declines in stock prices, thus stabilizing their investment returns.
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Oct 06, 2025
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