A future is used to hedge. Someone claims that the day-to-day settlement mechanism can create cash...
A future is used to hedge. Someone claims that the day-to-day settlement mechanism can create cash flow problems. How is this claim judged?
Homework Answers
Future can also be used for SPECULATION. Speculators might or might not have enough money nor they will have the required the credibility.
So, in order to ensure the safety and efficiency of the market, the exchange requires day-to day settlement of the profits and losses, which is called Marking to Market i.e. MTM.
Therefore, the claim that it is used ONLY FOR HEDGING and day-to day settlement can creat problems is not justifiable.
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