Futures contracts reduce future uncertainty. Which statement(s) show how this is achieved?
I. Futures contracts allow the parties involved to mitigate possible shortages in quantities of the good.
II. Futures contracts allow the parties involved to mitigate unexpected changes in price that could hurt earnings.
III. Futures contracts always allow the seller to receive a price that is higher than the market price for the product.
A) I and II only
B) I only
C) I and III only
D) I, II, and III

Question

Quizplus · Accepted Answer

Futures contracts can help parties mitigate both shortages in quantities of the good and unexpected changes in price, but they do not guarantee a higher price for the seller. Therefore, statements I and II are correct, but III is not. Choice A includes only I and II.

Futures Contracts Reduce Future Uncertainty