Which of the following statement is are correct about Futures derivative 1 Futures Derivatives are s...........

Finance (Phase -I & II) Valuation of Securities

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Which of the following statement is/are correct about Futures derivative ?

1.Futures Derivatives are similar to a forward contract.

2.Futures Derivatives can be used for hedging or speculation.

only 1

only 2

Both 1 and 2

Neither 1 nor 2

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Explanation:

The basic types of derivatives are forward, futures, options, and swap.
Futures-
1. Futures are similar to a forward contract. The difference is that futures are standardised agreements to buy or sell an asset in the future at an agreed upon price. Therefore, they can be traded on stock exchanges.
2. The value of the futures depends on the price of the underlying asset.
3. Futures can be used for hedging or speculation. Speculation means buying and selling an asset with the hope of making a profit.