Multiple choice general knowledge

Speculators help to:

  1. increase the number of potential buyers and sellers in the market.

  2. add to market liquidity.

  3. aid in the process of price discovery

  4. facilitate hedging.

  5. all of the above.
Reveal answer Fill a bubble to check yourself
E Correct answer
Explanation

Speculators provide essential market functions: they increase the number of participants (creating more buyers and sellers), add liquidity by being willing to take positions, aid in price discovery through their trading activity, and facilitate hedging by providing the counterpart for hedgers' positions. Without speculators, hedgers would find it difficult to find counterparties.

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