Question

functions of future markets

Answer 1

Functions of future markets:
1. Hedging: It helps in protecting against future volatility in market prices . E.g., A farmer can enter into a future contract so that in case the of prices fall he is protected from the loses.
2. Price discovery: it helps in arriving at the price of various commodities like oil, gold, food items, commodities, etc. The demand and supply in future markets help in arriving at equilibrium price.
3. Speculation: It helps in reducing inefficiency in commodities market by reducing the bids ask price. Speculators assume the risk making the market more efficient and bring price stability.


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