Title: Conclusion: The economic function of futures markets
Abstract: Long popular as a stylized representation of the reasons that a handler of commodities uses futures markets is the picture of a miller who sells a futures contract because he is concerned with the fluctuating value of his inventory of wheat. If the spot and futures prices of wheat rise by the same amount, he loses on his short position in futures what he gains in the value of his inventory, and if prices fall, the reverse happens. Because the net is zero regardless of the way the prices move, it is as if the miller has bought insurance against movements in price. Although those dealers actually using futures markets as well as scholars closely studying them know that this stylized representation distorts reality, not least because spot and futures prices do not move in parallel, they insist on employing it, maintaining that it conveys the essential purpose of futures markets.
Publication Year: 1986
Publication Date: 1986-02-28
Language: en
Type: book-chapter
Indexed In: ['crossref']
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Cited By Count: 5
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