Derivatives

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Stock futures Stock futures are agreement to buy or sell a specified stock i.e. Equity share of a specified company in the future at a specified price. An investor who is interested in purchasing a share may buy the share in stock exchanges for cash. These agreements are transacted through future exchange with the help of brokers. The terms of the agreement are specified and standardized by the exchange to facilitate funding. A stock future contract may be settled on the prescribed delivery date by transfer of the underlining for cash. Alternatively it may be settled through a reverse fund on any day before the expiry date. A person who agrees to buy a share in the future at a specified price is said to buy a stock future. Commodity future Commodity future are standardized agreement to buy or sell specified quantities of physical commodities at a specified future date at a price already agreed upon at a time of contract. Such a contact has to be transacted through an organized exchange because future contracts are traded in organized stock exchange set up for the purpose of enabling future trading. It is the exchange which determines specification of future contracts, such as size of contracts, quality of commodities, delivery date, time and mode etc.commodity future contracts are line with all future contracts are characterized by the facility for closure of the contracts before maturity. ASSET LIABILITY MANAGEMENT. Asset Liability Management relates to management of the risks associated with the following types of risks: 1. Risks arising from liquidity mismatch or liquidity risk, 2. Risks arising from movement in interest rates or interest rate risk, and 3. Risks arising from movement in exchange rates or foreign currency risks.

Spread lock strategy An agreement that fixes the spread between the forward price of an interest rate swap and its underlying government bond yield. The spread lock allows a future user of an interest rate swap to take advantage of...
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