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    Question

    In derivatives market, individual/firm that take short

    and long positions in the same or different contracts at the same time to create a position which can generate a riskless profit are known as __________
    A Hedgers Correct Answer Incorrect Answer
    B Arbitrageurs Correct Answer Incorrect Answer
    C Speculators Correct Answer Incorrect Answer
    D A and C Correct Answer Incorrect Answer
    E A and B Correct Answer Incorrect Answer

    Solution

    Derivative market has 3 broad categories of participants: ·         HEDGERS: These are investors with a present or anticipated exposure to the underlying asset which is subject to price risks. Hedgers use the derivatives markets primarily for price risk management of assets and portfolios. ·         SPECULATORS: These are individuals who take a view on the future direction of the markets. They take a view whether prices would rise or fall in future and accordingly buy or sell futures and options to try and make a profit from the future price movements of the underlying asset. ·         ARBITRAGEURS: They take positions in financial markets to earn riskless profits. The arbitrageurs take short and long positions in the same or different contracts at the same time to create a position which can generate a riskless profit.

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