Question
Why do derivatives improve operational efficiency for portfolio investors seeking broad market exposure?
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Answer
They avoid trading many cash securities and lower transaction costs.
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Question
A wheat farmer sells futures to lock in a crop price. Which derivative benefit is illustrated?
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Answer
Risk allocation and transfer.
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Question
An exporter uses a forward to lock in the home-currency value of future USD receivables. Is this hedging, speculation, or arbitrage?
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Answer
Hedging.
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Question
A bond manager uses Treasury futures to change portfolio duration without trading the bonds. What investor use is illustrated?
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Answer
Hedging via duration management.
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