Question 1 of 20
What are the two core economic functions organized futures markets provide to commercial users, and how do hedgers and speculators interact?
Strong Interview Answer
Futures markets support price discovery and transfer price risk. A commercial hedger takes a futures position intended to offset an existing or anticipated cash-market exposure, while a speculator accepts price risk in pursuit of profit. The market can reduce price uncertainty, but it does not guarantee a profitable business outcome.
What to Listen For
- price discovery
- risk transfer
- commercial exposure
- hedger versus speculator
- no profit guarantee
Caution
Reward the reasoning and rule/mechanics connection, not verbatim wording. Require correct direction, formula, actor, or rule distinction where applicable.