Are the following statements consistent or inconsistent? Explain your answer and

Question

Are the following statements consistent or inconsistent? Explain your answer and discuss how equilibrium is achieved between the futures and cash markets.

1. Futures markets serve an important function of the global financial markets by giving investors the opportunity to better manage financial risks associated with their underlying business transactions.

2. The futures market is where price discovery takes place.

3. The introduction of futures contracts creates greater price volatility for the underlying commodity or financial asset.

Explanation / Answer

The above statements are consistent. Equilibrium is achieved between the futures and cash markets,

A place where dealing of financial instruments is done for immediate delivery and the place where future contracts are dealt by people and entities.

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