Why do investors hedge using futures contracts?
A) they are seeking to increase liquidity
B) they are willing to pay for a reduction in risk
C) in order to provide a counterparty to speculators
D) they are more flexible than forward contracts

Question

Quizplus · Accepted Answer

Investors hedge using futures contracts to reduce their risk exposure. By purchasing or selling futures contracts, they can offset potential losses in the underlying asset. This allows them to protect their portfolio and potentially increase their returns. Therefore, they are willing to pay for a reduction in risk.

Why Do Investors Hedge Using Futures Contracts