We believe that before buying a hedge option‚ she should forecast the profit or loss she may incur with the hedge. So‚ since she expects the USD to appreciate‚ it would be advisable for her to either short a forward contract or call option. A forward contract is an agreement between a corporation and a financial institution to exchange a specific amount of a currency at a specified exchange rate (known as the forward rate)‚ on a specified date in the future. However‚ the disadvantage of a forward
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76 CHAPTER 7 CURRENCY FUTURES AND OPTIONS MARKETS This chapter describes foreign currency futures and options contracts and shows how they can be used to manage foreign exchange risk or take speculative positions on currency movements. It also shows how to read the prices of these contracts as they appear in the financial press. SUGGESTED ANSWERS TO CHAPTER 7 QUESTIONS 1. On April 1‚ the spot price of the British pound was $1.86 and the price of the June futures contract was $1.85. During
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PROJECT REPORT ON “TRADING & CLEARING MECHANISM & REGULATORY FRAMEWORK FOR FUTURES AND OPTIONS” SUBMITTED BY (10018‚ 10028‚ 10040‚ 10073) SUMITTED TO PROF. Dr SAMPADA KAPSE. PGDM PROGRAMME (YEAR: 2010-12) TOLANI INSTITUTE OF MANAGEMENT STUDIES ADIPUR Overview TRADING MECHANISM In Indian context the futures & options traded on NSE is called NEAT-F&O trading system. Entities involved in trading system are: 1. Trading members. 2. Clearing members. 3. Professional clearing members
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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: A trader hedges when he/she has an exposure to the price of an asset and takes a position in a derivative to offset the exposure. In the case of speculation‚ the trader has no such exposure to offset. The trader is simply betting on the future movements
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5-52 Trend analysis‚ common-size financial statements‚ and ratios are presented for the Brody Corporation in Figure 5.4. Assume that you are auditing Brody ’s financial statements for the year ended 12/31/X8. You have performed tests of controls over the recording of gross sales and believe that the system is operating effectively and that 7 percent represents an accurate estimate of the increase in gross sales for 20X8 over the amount for 20X7. You should also assume that the financial statements
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Chapter 1 INTRODUCTION Background of the Study There are lots of herbal plants which are already known for its uses. Binayuyu (Antidesma ghaesembilla Gaertn var. ghaesembilla) is a herbal plant used by B’laan tribes in the southern part of the Philippines. It is said that it can cure stomach ache and helps to lower blood sugar. Artemia is a genus of aquatic crustaceans known as brine shrimp. Artemia‚ the only genus in the family Artemiidae‚ has changed little externally since the Triassic period
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foreign currency futures and options. Identify situations where you may choose one or the other. When Barings Bank‚ the oldest merchant bank in London‚ collapsed in 1995 after one of the bank’s employees lost £827 million due to speculative investing‚ primarily in futures contracts‚ it illustrated the extreme danger and volatility of derivatives. Options and futures can be used to eliminate‚ reduce‚ hedge and manage risk‚ but can also be highly speculative. Foreign currency futures are standardized
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In the futures markets‚ there is no assurance that a liquid market may exist for offsetting a commodity contract at all times. Some future contracts and specific delivery months tend to have increasingly more trading activity and have higher liquidity than others. The most useful indicators of liquidity for these contracts are the trading volume and open interest. There is also dark liquidity‚ referring to transactions that occur off-exchange and are therefore not visible to investors until after
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1. As an option writer‚ what is the best option to take when you forecast the market to be bullish? Sketch the profit/loss diagram and determine the in the money‚ out of the money and at the money. 2. The call option of Diamond Bhd stock has a striking price of RM30 and a cost of option RM2 per share with one month expiration date. The current market price of share is RM26. If you buy 3 lots (1 lots = 100 shares) of shares‚ calculate the profits or losses at the expiration date for each of the
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premium or discount? ANSWER. At a forward premium. e. What is the 90-day forward discount or premium on the Swiss franc? ANSWER. The 90-day forward premium is 5 points (pips)‚ which translates into an annualized forward premium of 0.21% (4 x (0.9498 – 0.9493)/0.9493). 2. What risks confront dealers in the foreign exchange market? How can they cope with these risks? ANSWER. Foreign exchange dealers must cope with exchange risk‚ because of the foreign currency positions they take. They
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