Economics Options And Futures Questions
The purpose of options and futures in financial markets is to provide investors with tools for managing risk, hedging against price fluctuations, and speculating on future price movements of underlying assets such as stocks, commodities, or currencies. Options give the holder the right, but not the obligation, to buy or sell the underlying asset at a predetermined price within a specified time period. Futures contracts, on the other hand, obligate the buyer and seller to transact the underlying asset at a predetermined price and date in the future. These financial instruments allow market participants to mitigate uncertainty, enhance liquidity, and potentially generate profits through leverage and speculation.