Question

A futures market is a central financial exchange where people can trade standardized futures contracts. A futures exchange provides physical or electronic trading venues, which can be organized as non-profit member-owned organizations or for-profit organizations. Futures exchanges can also be integrated under other types of exchanges, such as stock markets, options markets and bond markets. Futures contracts are sometimes used by corporations and investors as a hedging strategy. Hedging refers to a range of investment strategies that are meant to decrease the risk experienced by investors and corporations.

After May 2020, what are the prospects of futures contracts as a significant risk management tool for firms? Discuss critically.

Answer 1

After may 2020,future contracts are generally exposed to a high degree of volatility because there have been a sharp surge in the volatility index and which is easily visible and there have been a large number of participation which is increasing in the derivative market from a large number of increasing new participants

Prospects of future contract as a significant risk management tool is going to increase because there would be a higher amount of volatility with existing to the market and people are going to take more hedging position in order to help their risk and Portfolio and they will be trying to take contra position due to which they could be saving their gaines and they will be able to help himself in order to secure from any kind of Black swan event so there is a high increase in in uncertainty around the globe due to coronavirus concern and I think that future contracts are going to be a significant risk management tool in order to manage their risk of the downside of the portfolio by a large number of investor