1. Explain how the futures market ensures the payment of the winnings of profitable positions. 2....

1. Explain how the futures market ensures the payment of the winnings of profitable positions.

2. Explain how a ‘contrarian’ investor in equities can use futures to profit from anticipated fall in share prices

Make answers simple ! Thank you very much!

Solutions

Expert Solution

1. Future market is the market in which the investors trade in future contracts. The future market is a place where the buyers and sellers are matched by an electronic system to ensure that both the parties get the amount or the underlying asset as per their position in the future market. Thus, the payment is ensured by matching the positions of people in the future market.

2. A contrarian investor is a person who does not believe in the popular opinion about the market. In other words, the opinion of the contrarian investor is opposite to that of the other investors. If there is an anticipated fall in the share price then the contrarian investor will not believe it and instead hold the opinion that the share price will rise. In such a situation, the contrarian investor may plan to invest in a future contract to sell the shares. This way the contrarian investor can protect his position in the market. If the share price increases instead of falling then the contrarian investor is safe.

jeff jeffy answered 1 year ago

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