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.

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In a try to explain how the equilibrium is reached between the futures and the cash markets and also to check out the consistency of the statements given we first require to take a look on the implica... View the full answer