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Choose any futures exchange and elaborate on its characteristics and give a detailed description of its activities. Introduction Futures belong to the class of securities known as derivatives since its value is derived from the value of some other security. A futures contract is similar to a forward contract. Noting the shortcomings of the forward market, particularly the need and the difficulty in finding a counter party, the futures market came into existence. Futures contract is an agreement between two parties, that is a buyer and a seller, to buy or sell a particular currency or commodity at a future date, at a particular exchange rate that is fixed or agreed upon today. Characteristics Futures contract is much more…show more content…
Delivery must be made at approved warehouses in the major wool selling centres throughout Australia. For wool to be deliverable, it must possess the relevant measurement certificates issued by the Australian Wool Testing Authority (AWTA) and appraisal certificates issued by Australian Wool Exchange Limited (AWEX). Premiums and discounts for delivery that does not match the exact specifications of the underlying contract are fixed on the Friday prior to the last day of trading for all deliverable wools above and below the standard, quoted in cents per kilogram clean. Example of Physical delivery The process of physical delivery for the SFE greasy wool futures contract, it is similar for most commodity futures contract. Suppose the greasy wool futures contract price was 700 cents at the close of trading on the expiration day. Settlement involves physical delivery, from the seller of the futures contract to the buyer, of the underlying quantity of wool (2500 kilograms) on the business day following the expiration day. Delivery, therefore, involves the seller delivering 2500 kg of wool to the buyer, in return for a payment of A$17,500. Margin Although futures contracts require no initial investment, futures exchanges require both the buyer and seller to post a security deposit known as margin. Margin is typically set at an amount that is larger than usual
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