20: FUTURES Multiple Choice Questions 1. Spot markets are for immediate delivery. Forward prices are: a. b. c. d. The price agreed upon today for an asset for deferred delivery in the future. The price in the future for an asset delivered in the future. The price today for a forward price in the future. Based on current spot market prices. Ans: a Difficulty: Moderate Ref: An Overview of Futures Markets 2. A forward contract differs from a futures contract in that: a. b. c. d. a forward contract
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Practice Questions Problem 1.8. Suppose you own 5‚000 shares that are worth $25 each. How can put options be used to provide you with insurance against a decline in the value of your holding over the next four months? You should buy 50 put option contracts (each on 100 shares) with a strike price of $25 and an expiration date in four months. If at the end of four months the stock price proves to be less than $25‚ you can exercise the options and sell the shares for $25 each. Problem 1.9. A stock
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CHAPTER 5 Determination of Forward and Futures Prices Practice Questions Problem 5.8. Is the futures price of a stock index greater than or less than the expected future value of the index? Explain your answer. The futures price of a stock index is always less than the expected future value of the index. This follows from Section 5.14 and the fact that the index has positive systematic risk. For an alternative argument‚ let µ be the expected return required by investors on the index so that E (
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declare that this project entitled “Market research on commodity future trading with respect to Geojit COMtrade Ltd.”‚ submitted for the award of the PGDM Triple Specialization is a record of original project - research study- carried out during April 5th- June 5th) ‚ that the project has not formed before the basis for
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Options Are Better Than Futures For Hedging Futures trading can be used for two main purposes; Speculation and Hedging. While most retail futures traders get involved in futures trading for the purpose of leveraged speculation‚ it cannot be forgotten that the true purpose of futures contracts is for the purpose of hedging. Hedging using futures is technique most professional money managers use for decades. However‚ there is one main problem with hedging using futures and that is the fact that
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POINT/COUNTER-POINT: Has the Futures Market Created More Uncertainty for Stocks? POINT: Yes. Futures contracts encourage speculation on indexes. Thus‚ an entire market can be influenced by the trading of speculators. COUNTER-POINT: No. Futures contracts are commonly used to hedge portfolios‚ and therefore can reduce the effects of weak market conditions. Moreover‚ investing in stocks is just as speculative as taking a position in futures markets. WHO IS CORRECT? Use the Internet to learn
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POINT/COUNTER-POINT: Should Speculators Use Currency Futures or Options? POINT: Speculators should use currency futures because they can avoid a substantial premium. To the extent that they are willing to speculate‚ they must have confidence in their expectations. If they have sufficient confidence in their expectations‚ they should bet on their expectations without having to pay a large premium to cover themselves if they are wrong. If they do not have confidence in their expectations‚ they
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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 April
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INTEREST RATE FUTURES IN INDIA Dr. Shashi Srivastava * Divya Srivastava ** Abstract In the era of globalization‚ one of the macro-economic variable that has come into great focus is interest rate. The volatility of interest rates has increased manifold in the last couple of years. Interest rate risk management has become very important and assorted instruments like interest rate
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Who is in the Futures Market and How Has It Changed? Dec. 29 Who is in the Futures Market and How Has It Changed? A summary report of a study by James A. Baker III Institute for Public Policy Rice University. Office of OPEC Governor For enquires kindly contact Sammy AL Mehaid Sammy.mehaid@aramco.com 1 Who is in the Futures Market and How Has It Changed? Dec. 29 Introduction: Leading up to 2008‚ oil prices experienced a steady‚ upward trend. Then‚ in 2008 oil prices climbed to
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