Question

How Futures Prices May Respond to Prevailing Conditions.

Consider the prevailing conditions for inflation (including oil prices), the economy, the budget deficit, and other conditions that could affect the values of futures contracts. Based on these conditions, would you prefer to buy or sell Treasury bond futures at this time? Would you prefer to buy or sell stock index futures at this time? Assume that you would close out your position at the end of this semester. Offer some logic to support your answers. Which factor is most influential on your decision regarding Treasury bond futures and on your decision regarding stock index futures? please use examples like coronovirus affecting it or anything like that. or flights being prevented due to the virus or anyting like that

Answer 1

Future contracts are derivative financial contracts that obliged to buy or sell particular asset or security in future for predetermined price and at specified time. Future contracts are made to hedge the price movement of particular asset or commodity to prevent lossess from volatility in price.

Due to present situation of corona virus, companies are taking difficult decision of cancelling future contracts. Due to unfavorable price changes in market.

There is inverse relationship between price of bond and interest rate. If decrease in interest rate then price of bond increases and vice versa.

Inflation i.e. increasing prices of goods and services may have negative impact on bond. Inflation makes interest rate go up, in turn the bond price will decrease. Inflation lead to increase in prices that decreases purchasing power, that overall decline price of stock.

Budget deficit may also lead to inflationary situation affects bond price to down ward. Increase in Budget deficit depressed the stock market in short run but positive impact on long run.

Due to present situation of corona virus there is more concern and restrictions on travelling and tourism. All international trade have stopped. So there is possibility of increase in prices of oil in many countries like India. Negative impact on hotel business, tourism, transport business.

In auch inflationary situation I am not suggesting to buy or sell treasury bond. But I will prefer to invest in stock market for long term.

Budget deficit lead to positive impact on bond in long term, suggest to buy Treasury bond for long term. Also suggesting to invest in stock market for long run.

Corona virus conditions impacts air line business, hotel, tourism not for long period but makes recession.

I am suggesting to invest for long term period.

Future contracts can be decided based on goods and service that we agreed.