Financial futures have become an increasingly attractive investment alternative since the Chicago Board of Trade (CBOT)began trading them in 1977,and their hedging function partly accounts for the growth in trading.Which of the following statements concerning financial futures is true?
A) Financial futures protect the investment portfolio against inflation in the economy.
B) Investors seek protection against the increasing volatility of interest rates.
C) Unlike commodity futures, factors that influence price shifts are not supply and demand of the commodity but buyer psychology.
D) A reason for their popularity is that trading is restricted to government obligations, which reduces risks.
E) All of the above are true statements

Question

Quizplus · Accepted Answer

The statement that is true is that investors seek protection against the increasing volatility of interest rates. Option A is incorrect because financial futures do not directly protect against inflation. Option C is incorrect because the factors that influence the price shifts of financial futures are the same as those that affect the underlying assets, such as interest rates or stock prices. Option D is incorrect because financial futures can be traded on a variety of underlying assets, not just government obligations.

Financial Futures Have Become an Increasingly Attractive Investment Alternative Since