If investors speculate in the underlying asset rather than in derivative contracts on the underlying asset, they will probably achieve ____ returns, and they are exposed to relatively ____ risk.

Question

Quizplus · Accepted Answer

Investors who speculate in the underlying asset rather than in derivative contracts on the underlying asset are exposed to relatively higher risk because they are not protected by the limited liability that is offered by derivative contracts. They will probably achieve lower returns because they are not able to use leverage to magnify their profits.

If Investors Speculate in the Underlying Asset Rather Than in Derivative