Suppose that everyone believes war is about to break out in the Middle East, decreasing the supply of oil. One should:
A) buy oil futures because the reduced oil supply will raise the price of oil.
B) sell oil futures because the reduced oil supply will decrease the price of oil.
C) speculate at random.
D) do nothing; prices already reflect that information.

Question

Quizplus · Accepted Answer

If everyone believes war is about to break out in the Middle East, it is likely that the reduced oil supply will raise the price of oil. Therefore, buying oil futures is the best choice to profit from the expected increase in oil prices. Increasing demand for oil futures will increase their price, allowing traders to sell them later for a profit when the price of oil rises.

Suppose That Everyone Believes War Is About to Break Out