Problem 1.7. Suppose that you write a put contract with a strike price of $40 and an expiration date in three months. The current stock price is $41 and the contract is on 100 shares. What have you committed yourself to? How much could you gain or lose? You have sold a put option. You have agreed to buy 100 shares for $40 per share if the party on the other side of the contract chooses to exercise the right to sell for this price. The option will be exercised only when the price of stock is below
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increase during that period and would like to hedge against this risk. 3 Example • The farmer and the baker agree to enter into the following contract: In 3 months from today the baker will buy from the farmer 10‚000 bushels of wheat for $5 per bushel. • The actual price of wheat may be below or above $5 in 3 months. The contracts acts an insurance against this price risk. 4 What is Risk? • We dislike uncertainty because we fear the possible adverse outcomes • In order
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Introduction to Forward and Futures Forwards A. Introduction to Forwards and Futures contracts B. Payoff Charts for Futures contract C. Futures pricing Cash and carry / Non-arbitrage model for futures pricing arbitrage Expectancy model of futures pricing Concept of convergence of cash and futures prices oncept D. Basic differences in Commodity‚ Equity and Index Futures E. Uses of futures Role of different players in futures market ole Use of futures contract as an effective
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speculators willing to arrange future currency selling or buying contracts while hoping hoping to buy or sell the currency at favourable anticipated exchange rates in the future. This act of speculator exposed them to the risk of financial fluctuation. Currency based derivatives are complex financial instruments that are “derived” from the underlying currency exchange rate. They includes currency forward “buying” or “selling” contract‚ “buy” or “sell” currency future‚ call and put options‚ currency
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Workbook for NISM-Series-VIII: Equity Derivatives Certification Examination National Institute of Securities Markets www.nism.ac.in 1 This workbook has been developed to assist candidates in preparing for the National Institute of Securities Markets (NISM) NISM-Series-VIII: Equity Derivatives Certification Examination (NISM-Series-VIII: ED Examination). Workbook Version: April 2014 Published by: National Institute of Securities Markets © National Institute of Securities Markets‚ 2012 Plot 82
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------------------------------------------------- Presentation on Derivatives ------------------------------------------------- ------------------------------------------------- DERIVATIVES Definition: A derivative is a complicated financial contract that gets (derives) its value from an underlying asset. It is an agreement between a buyer and a seller that says how much the price of the asset will change over a specific period of time. The underlying asset can be a commodity‚ such as oil‚ gasoline
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` Cover Type B TO BE RETURNED AT THE END OF THE EXAMINATION. THIS PAPER MUST NOT BE REMOVED FROM THE EXAM CENTRE. SURNAME:____________________________________ FIRST NAME:____________________________________ STUDENT NO:____________________________________ COURSE:____________________________________ 25556 The Financial System Special exam‚ spring semester‚ 2011 Time Allowed: 3 hours plus 10 minutes reading time. Exam day and date:
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1. A company enters into a short futures contract to sell $5000. The current future price is 250 cents per pound. The initial margin is $3000 and the maintenance margin is $2000. What price change would lead to a margin call? Under what circumstances $1500 could be withdrawn from the margin account? 2. Stock is expected to pay a dividend of Tk 10 per share in 2 months and again in 5 months. The stock price is Tk 500 and risk free rate of interest is 8% p.a. with continuously compounded for all
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affect Tiffany’s cash position and tax implication‚ * Historically yen/dollar exchange rate has been volatile‚ * Management can concentrate on its main business‚ * The cost of hedging or insurance was not substantial‚ cost is zero on average if the forward rate equals the expected spot rate‚ * There exists efficient foreign currency markets that Tiffany can rely on Tiffany’s sales in Japan was about $200 million (1% of the $20b Japan market)‚ which is sufficiently large compared with the $18.0 million
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includes all kinds of goods. FCRA defines "goods" as "every kind of movable property other than actionable claims‚ money and securities". Futures’ trading is organized in such goods or commodities as are permitted by the Central Government. At present‚ all goods and products of agricultural (including plantation)‚ mineral and fossil origin are allowed for futures trading under the auspices of the commodity exchanges recognized under the FCRA. The national commodity exchanges have been recognized by
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