The Chicago Mercantile Exchange offers a futures contract on the S&P 500: The size of a CME S&P 500® futures contract is the contract's multiplier ($250) times the current CME S&P 500 futures level. If the Index level is at 1400, for example, then the contract is worth: $250 × 1400 = $350,000. The contract is settled by a cash payment between the buyer and the seller.
a. What type of investor would find this futures contract useful in hedging? Briefly explain how these investors would use it to hedge.
b. What type of investor would find this futures contract useful in speculating? Briefly explain how these investors would use it to speculate.