Hedging Strategies using Futures Introduction to Hedging Hedging refers to reducing risk. Let us take a simple example to understand hedging. A farmer expects to produce ‘X’ quantity of a commodity by the end of the cropping season say‚ October. He has to invest a certain amount of money today from his savings or maybe take a loan in expectation of returns he will get in October. But‚ he cannot accurately predict the prices he will get for his produce. A dip in prices could result in a loss. To deal
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actually use our history to help shape future? In fact‚ the Harvard Business School released a study that classified 3 percent of people as successful‚ 30 percent of people as somewhat successful‚ and the other two-thirds as simply watching life pass them by. We cannot be a complacent dreamer‚ only dreaming of the activities that went on throughout our rich history. Also‚ let us not be the basic believer‚ understanding our past but never allowing it to shape our future. An achiever is what we all should
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Essay [2007] Qns 6. How important is a sense of history in shaping the future of Singapore’s society? Singapore is without a doubt‚ a diversified nation with many different cultures and races. Contrary to the popular belief of difference leading to antagonism‚ Singapore is perhaps one of the few countries globally to welcome people despite their variable backgrounds and still remain collectively competitive. Indeed‚ credit is due to Singapore’s society past or present‚ had been seen to be shaped
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PART I. MULTIPLE CHOICE QUESTIONS 1. When the value of the British pound changes from $1.50 to $1.25‚ then the pound has _________ and the dollar has _________. a. appreciated; appreciated b. depreciated; appreciated c. appreciated; depreciated d. depreciated; depreciated 2. When the exchange rate changes from 1.0 euros to the dollar to 0.8 euros to the dollar‚ then the euro has _________ and the dollar has _________. a. appreciated; appreciated
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S&P/ASX 200 futures contract is 10% and the stock index is currently 4400. Each contract has a multiplier of $25. How much margin must be put up for each contract sold? If the futures price falls by 1% to 4356‚ what will happen to the margin account of an investor who holds one contract? What will the investor’s percentage return based on the amount put up as margin be? The value of margin must be put up for each contract sold: 4400 x 25 x 10% =$11000 When the futures price fall 1%
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derived from the combination of cash market instruments or other derivative instruments. FEATURE OF FINANCIAL DERIVATIVES • Realated to Future: A Derivative instrument relates to the future contracts between two parties. It means there must be some contracts binding on the parties and same to be fulfilled in future. • Value Derived from Underlying Asset: The
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COMMODITY MARKET [pic] INDEX |Chapter No |Topic |Page No. | |1 |Introduction to Commodity Market |04 | |2 |History of Evolution of Commodity Markets |08 | |3
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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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Introduction Future Shop (http://www.futureshop.ca/en-CA/home.aspx) From Wikipedia‚ the free encyclopedia Future Shop is Canada’s largest consumer electronics retailer. Future Shop operated 139 stores across all of Canada’s provinces in January 2013. Future Shop was purchased for C$580 million by Best Buy on November 4‚ 2001. The company was renamed Best Buy Canada Ltd.—a wholly owned subsidiary of its American parent. It has continued to operate Future Shop as a separate division‚ with
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Eurodollar futures contract. September 90-day Eurodollar futures contracts are currently trading at 96.25. You are required to a. Explain how treasurer can hedge the risk through Eurodollar futures contract? How many futures contracts are required to hedge? b. If the September futures contract in August closes either at 95.75 or 96.80‚ calculate the cost of the bond to the company in each case. 4 a. The treasurer can hedge the risk by selling Eurodollar futures contract. The short futures position
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