Futures Markets: An Overview

In general, markets are divided into two broad categories: (i) cash markets and (ii) futures markets. Consider, for example, the cash market for coffee. Coffee producers supply a variety of coffee beans, which are sold in grocery stores or specialty coffee stores to interested consumers. The main characteristic of cash markets is the exchange of the product or service for payment in cash or with a credit arrangement. Economic analysis can be applied to examine this cash market, often also called the spot market, by considering the factors determining supply, demand, market characteristics, and price formation for the specific product or service. The majority of business activities in any economy are generated in cash markets and with appropriate national income accounting methods, these cash transactions are aggregated to measure the economy's gross national product…