Futures markets can be used for speculation. If you believe that the spot price of T-bills is going to be much higher by next June, which of the following would be the best way to act on this belief?
A)You could sell T-bills into the spot market now.
B)You could sell a futures contract on T-bills.
C)You could buy a futures contract on T-bills.
D)You could buy T-bills on the spot market in June.

Question

Quizplus · Accepted Answer

Buying a futures contract on T-bills would be the best way to act on the belief that the spot price of T-bills will be higher by next June. This is because if the spot price does increase, the futures contract will increase in value, allowing the investor to profit. Selling T-bills into the spot market now or selling a futures contract on T-bills would not be profitable if the spot price increases. Buying T-bills on the spot market in June would result in paying the higher spot price, resulting in no profit.

Futures Markets Can Be Used for Speculation