WAEC Commerce 2013 Theory — Question 4

Model answer

(a) Bull: A bull is a person who buys stock in the stock market when the prices are low and sell it when the prices are high. It is opportunity seeker in the market. It is usually optimistic about the stock market. (b) Bear: A bear is an investor who believes that a particular security, or the broader market is headed downward and may attempt to profit from a decline in stock prices. Bears are typically pessimistic about the state of a given market or underlying economy. (c) Option: Options are financial instruments that are derivatives based on the value of underlying securities such as stocks. An options contract offers the buyer the opportunity to buy or sell — depending on the type of contract they hold. (d) Backwardation: Backwardation is when the current price-spot-price of an underlying asset is higher than prices trading in the futures market. (e) Contango: A contago is a fee paid by a buyer to a seller when the buyer decides to defer from the initial agreement or trade they had agreed upon.