The main advantage of using options on futures contracts rather than the futures contracts themselves is that interest-rate risk is
A) controlled while preserving the possibility of gains.
B) controlled while removing the possibility of losses.
C) not controlled but the possibility of gains is preserved.
D) not controlled but the possibility of gains is lost.

Question

Quizplus · Accepted Answer

Options on futures contracts allow for controlling the interest-rate risk while still preserving the possibility of gains. This is because options give the holder the right but not the obligation to buy or sell a futures contract at a certain price, allowing for flexibility in managing the risk. With futures contracts, the risk is not controllable and the possibility of gains or losses is directly tied to the movement of the underlying asset.

The Main Advantage of Using Options on Futures Contracts Rather