Options markets are designed to:
A) give people choice about where to invest their money.
B) give greater flexibility to people in managing their financial risk.
C) lock in a return on a financial instrument to avoid interest rate movements.
D) increase risks, and hence returns, on financial instruments.

Question

Quizplus · Accepted Answer

Options markets provide investors with the ability to manage their financial risks by providing them with flexibility in hedging against fluctuations in the market. Options allow investors to buy or sell securities at a predetermined price, giving them the ability to limit their losses if the market moves against them. Therefore, option markets are designed to give greater flexibility to people in managing their financial risk. Option markets do not necessarily increase the risks and returns of financial instruments, nor do they lock in returns on financial instruments to avoid interest rate movements. While option markets do provide investors with choice, this is not the primary purpose of these markets.

Options Markets Are Designed To