Distinguish between futures and forward contract Futures contract A futures contract is a contractual agreement‚ generally made on the trading floor of a futures exchange‚ to buy or sell a particular commodity or financial instrument at a pre-determined price in the future. Futures contracts feature the quality and quantity of the underlying asset‚ they are standardized to facilitate trading on a futures exchange. Some futures contracts may call for physical delivery of the asset‚ while others
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Financial Risk Management‚ FIN3FRM Semester 2‚ 2012 Assignment 1 Q.1 An investor enters into a short forward contract to sell 100‚000 British pounds for U.S. dollars at an exchange rate of 1.9000 U.S. dollars per pound. How much does the investor gain or lose if the exchange rate at the end of the contract is (a) 1.8900 and (b) 1.9200? (2 points) Solutions: a) The investor as part of obligation for selling pounds‚ because of his obligation to
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you enter into a short futures contract to sell July silver for $17.20 per ounce. The size of the contract is 5‚000 ounces. The initial margin is $4‚000‚ and the maintenance margin is $3‚000. What change in the futures price will lead to a margin call? What happens if you do not meet the margin call? Problem 5.2. What is the difference between the forward price and the value of a forward contract? Problem 5.3. Suppose that you enter into a six-month forward contract on a non-dividend-paying
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of Futures and Forward Markets 1. Which of the following is true (circle one) a) Both forward and futures contracts are traded on exchanges. b) Forward contracts are traded on exchanges‚ but futures contracts are not. c) Futures contracts are traded on exchanges‚ but forward contracts are not. d) Neither futures contracts nor forward contracts are traded on exchanges. 2. Which of the following is not true (circle one) a) Futures contracts
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FINE-7670 Risk Management and Applications to Energy Firms Spring 2014 January 15‚ 2014 HW#1 PART I: Analytical Questions 1. The price of gold is currently $600 per ounce. The forward price for delivery in 1 year is $800. An arbitrageur can borrow money at 10% per annum. What should the arbitrageur do? Assume that the cost of storing gold is zero and that gold provides no income. 2. On September 12‚ 2006‚ an investor owns 100 Intel shares. As indicated in the table below‚ the share price
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A futures contract is a commitment to make or take delivery of a specific quantity of a commodity or other financial obligation at a predetermined place and time in the future. All terms of the contract are standardized and established beforehand‚ except for the price‚ which is determined by open outcry in a pit or ring on the exchange trading floor of a commodity exchange. All contracts ultimately are settled either through liquidation (by offsetting purchases or sales) or by the delivery of the
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tistisSolution: Exercise 1 1. What is the difference between a long forward position and a short forward position? Ans: When the enters into a long forward contract‚ he/she is agreeing to buy the underlying asset for a certain price at a certain time in future. When the enters into a short forward contract‚ he/she is agreeing to sell the underlying asset for a certain price at a certain time in future. 2. Explain carefully the difference between hedging‚ speculation‚ and arbitrage. Ans:
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owner d. The development of a common currency in Europe. 3. A hedger in the futures market hedges to prevent a loss in a business transaction‚ but also gives up: a. A sizable fee to the exchange b. The loss on the futures contract c. The opportunity to gain from a favorable turn in prices of the item d. The potential gain on the futures contract. 4. All the following are risks associated with futures contracts except: not good question a. Margin risk b. Basis risk c. Price risk d. Manipulation
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Futures contract In finance‚ a futures contract is a standardized contract between two parties to exchange a specified asset of standardized quantity and quality for a price agreed today (the futures price or the strike price) but with delivery occurring at a specified future date‚ the delivery date. The contracts are traded on a futures exchange. The party agreeing to buy the underlying asset in the future‚ the "buyer" of the contract‚ is said to be "long"‚ and the party agreeing to sell the asset
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A PROJECT REPORT ON AN ANALYTICL STUDY OF DERIVATIVES IN FUTURES WITH REFERENCE TO UNICON SECURITIES Submitted in partial fulfillment for the award of the Master of Business Administration [pic] I‚ under signed here by declare that the project report entitled “AN ANALYTICAL STUDY OF DERIVATIVES IN FUTURES WITH REFERENCE TO UNICON SECURITIES”‚ and this project is submitted to XXXXXX‚ affiliated to XXXX‚ is drafted by me and is original work of my own.
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