Which of the following statements relating to the use of futures contracts is incorrect?
A) Futures contracts are derivative products that derive from a physical market product.
B) The pricing of futures contracts is based on the price of the underlying market product.
C) Future physical market price changes are offset by a profit or loss in the futures market.
D) Futures contracts are generally closed out by delivery of the physical market product.

Question

Quizplus · Accepted Answer

Futures contracts are primarily used for hedging against future price movements of the underlying market product. However, they are typically closed out by cash settlement rather than delivery of the physical market product. Only a small proportion of futures contracts result in physical delivery.

Which of the Following Statements Relating to the Use of Futures