A major risk with pure spot transactions is:
A)It's difficult to predict what future costs will be
B)If a market shortage arises, there is no obligation or loyalty to be called upon to secure supply
C)There is less risk
D)Both a and b above

Question

Quizplus · Accepted Answer

Option A is correct as it is difficult to predict future costs in pure spot transactions. These transactions involve immediate delivery and payment, without any forward or futures contract, which makes it difficult to anticipate what future prices might be.

Option B is also correct as there is no obligation or loyalty in pure spot transactions to secure supply if a market shortage arises. In contrast, forward or futures contracts provide an obligation to deliver or take delivery of the underlying asset, which can help ensure supply in a shortage.

A Major Risk with Pure Spot Transactions Is