you work for a conservative asset management firm. Recognizing the economic bene

Question

you work for a conservative asset management firm. Recognizing the economic benefit of using futures contracts for some of your clients, you request permission from the compliance department to open a futures account. On learning of your request, the firm's chief investment officer requests a meeting with you to explain his disdain for any derivatives, saying, "I might as well write you a check, wish you good luck, and send you off to our local casino. all derivatives markets are nothing more than legalIzed games of chance." How would you try to persuade the CIO to let you use futures?

Explanation / Answer

Derivative instruments like futures help participants in the market to hedge risk and in speculation. Futures help the firm to hedge (avoid losses) and earn profits (speculation). Futures are contracts that allow the firm to make profits and avoid loss from prediction of market moves.

Most of the banks and firms who use derivatives do very well.

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