Speculators in derivatives markets
A) reduce the efficiency of these markets.
B) are acting contrary to U.S. securities laws.
C) accept risk transferred to them by hedgers.
D) reduce the liquidity of these markets.

Question

Quizplus · Accepted Answer

Speculators in derivatives markets accept risk transferred to them by hedgers. Their role is to provide liquidity and facilitate hedging transactions. They add to market efficiency by absorbing risk that would otherwise be borne by hedgers, who are more interested in reducing or eliminating risk than in making speculative gains. Thus, option C is the correct statement. The other options are incorrect.

Speculators in Derivatives Markets