A futures contract is primarily used to:

A futures contract is primarily used to:

• A. Deliver immediately
• B. Discover prices for a later time period
• C. Guarantee no risk
• D. Avoid price discovery

Answer: (B)

Futures markets primarily serve to reveal what the market expects the price of the asset to be at a future date. This price discovery happens as many participants—hibers, producers, processors, and speculators—trade based on new information about supply and demand. As weather, yields, demand, or policy news comes in, contract prices adjust to reflect that information, giving a transparent signal for planning. For example, a farmer can hedge by locking in a price for the next harvest through a futures contract, and a processor can lock in input costs in advance. The contract’s value moves with new information, helping both sides gauge the likely future price. The other choices don’t fit because futures aren’t primarily about delivering immediately, they don’t guarantee no risk (risk remains even with hedging), and they actually enable price discovery rather than avoid it.

Futures markets primarily serve to reveal what the market expects the price of the asset to be at a future date. This price discovery happens as many participants—hibers, producers, processors, and speculators—trade based on new information about supply and demand. As weather, yields, demand, or policy news comes in, contract prices adjust to reflect that information, giving a transparent signal for planning.

For example, a farmer can hedge by locking in a price for the next harvest through a futures contract, and a processor can lock in input costs in advance. The contract’s value moves with new information, helping both sides gauge the likely future price.

The other choices don’t fit because futures aren’t primarily about delivering immediately, they don’t guarantee no risk (risk remains even with hedging), and they actually enable price discovery rather than avoid it.