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Q6B

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Essentials Of Investments
Found in: Page 589
Essentials Of Investments

Essentials Of Investments

Book edition 9th
Author(s) Zvi Bodie, Alex Kane, Alan Marcus, Alan J. Marcus
Pages 748 pages
ISBN 9780078034695

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Short Answer

Why might individuals purchase futures contracts rather than the underlying asset?

Answer

Lower transaction cost, ease to alter holding and ability to buy on margin

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Step by Step Solution

Step 1: Definition of underlying assets:

The financial assets from which derivative instruments like option, future contract, forward contract, etc extract its value is underlying assets.

Step 2: Advantages of futures’ contract

Following are the advantages of futures contracts over underlying assets:

a. The ability to buy on margin

b. Ease to alter holdings

c. Lower transaction cost

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