An individual who neither uses nor produces a commodity but buys a futures contract for the asset is:
A) speculating that the price of the commodity is going to fall.
B) speculating that the price of the commodity is going to increase.
C) is using arbitrage to earn profits without taking a risk.
D) is hedging and transferring risk.

Question

Quizplus · Accepted Answer

An individual who buys a futures contract for a commodity without using or producing the asset is generally speculating that the price of the commodity will increase in the future, allowing them to sell the contract for a profit. This is known as a long position. Choice A, which suggests the individual believes the price will fall, would instead indicate a short position. Choices C and D describe other possible uses of futures contracts but do not apply to this situation.

An Individual Who Neither Uses nor Produces a Commodity but Buys