Exam (elaborations) TEST BANK FOR Fundamentals of Futures and Options Markets 8th Edition By John Hull (Students Solutions Manual and Study Guide)

The chapter identifies the three main types of trader that use forward, futures, and options markets. Hedgers use the markets to reduce their risk exposure to a market variable such as an exchange rate, a commodity price, or an interest rate. Speculators use the market to take a position on the future direction of a market variable. Arbitrageurs attempt to lock in a riskless profit by simultaneously entering into transactions in two or more markets. The chapter gives examples of the activities of the three types of traders. Hedge funds (see Business Snapshot 1.3) use derivatives for all three purposes. As the SocGen example (Business Snapshot 1.4) shows, one of the dangers in derivatives markets is that a trader will use derivatives for unauthorized speculation and lose a lot of money before the