By establishing a short position in a futures contract, a speculator __________
A) accepts risk associated with a price decrease in the underlying asset.
B) accepts risk associated with a price increase in the underlying asset.
C) is using their position to hedge against a price increase of the underlying asset.
D) is using their position to hedge against price risk.
E) agreeing to buy the underlying asset in the future a price set out in the futures contract.

Question

Quizplus · Accepted Answer

By establishing a short position in a futures contract, a speculator is betting on the price of the underlying asset decreasing. Therefore, they are accepting the risk associated with a price increase in the underlying asset, which would result in losses for the short position. They are not using their position to hedge against a price increase or to hedge price risk, and they are not agreeing to buy the underlying asset in the future at a set price.

By Establishing a Short Position in a Futures Contract, a Speculator