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What is the role of the futures market? Please provide an example.

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This solution discusses the role of the futures market.

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For market participants, the primary purpose of futures markets is to transfer the risk of adverse changes in commodity/currency prices from those who wish to reduce risk to those willing to accept it. Commercial firms (that produce or use the commodity) shift part of the risk of price change to proprietary traders, who willingly assume that risk for the opportunity to earn a profit on their venture capital.

A critically important outcome of futures trading is the revelation of price information that reflects a multitude of market views, as expressed ...

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Sandeep Bardia, MBA
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  • BCom, SGTB Khalsa College, University of Delhi
  • MBA, Rochester Institute of Technology
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