futures. Most of the indexes used for futures comprise major stocks in the market so that movement of
the index eectively reects the movement of the market as a whole.
e creation of index futures can be attributed to the need of portfolio managers to hedge their portfo-
lio risk. Portfolio managers are concerned about possible decreases in the value of portfolio, and manag-
ing the risk by dealing in each stock would be very expensive. Instead, these portfolio managers preferred
a mechanism through which they could hedge the portfolio risk at a low cost. Since the main purpose of
futures contracts is to enable hedging, index futures were created for portfolio managers to hedge the risk
of ...
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