Question

Chapter 13 Financial Futures -  can be used to mitigate some risk in the financial markets. These are standardized contracts to receive or deliver an instrument at a specific date and price. Some important ones are Interest Rate Futures Stock index futures currency and commodity futures. These days with volatility in the market oil futures contract have gone to just about zero. Companies and/and investors can use them to hedge or speculate. Discus any one of these or select any other future contract, providing and briefly discussing its importance. Very relevant topic these days.

Answer 1

Financial futures are very important when it comes to hedging the portfolio against several adverse event in the the economic scenario.

one can use futures to hedge his portfolio to protect against any adverse moment like this could be reflected through an example.if one has a long-term portfolio of several stocks which are bullish on American economy which maybe consisting of the major stocks of any particular index ,so one can hedge his downside risk by taking opposite position in the futures market through selling of the index futures

When one is long on the portfolio and he is hedging the downside risk by going short on the index futures so in any adverse situation, if the index falls beyond a particular limit, the loss on the portfolio will be minimised by the gains on the the overall short position on the index. So index futures are common tool to hedge against any risk in the equity market.