Define the terms, or give short explanations. -short sale/short selling -speculation -speculator -swap -swaption -theoretical fair value (of an asset) -underlying asset
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Define the terms, or give short explanations.
-short sale/short selling
-speculation
-speculator
-swap
-swaption
-theoretical fair value (of an asset)
-underlying asset
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Solved in 3 steps
- describe the process of short selling. define the theoretical fair value of an asset and relate it to the concept of market efficiency. discuss and relate the concepts of arbitrage and the law of one price. describe how and why risk is transferred from hedgers to speculators in derivative markets.Define the terms, or give short explanations. -arbitrage -business risk -call -cash market/spot market -derivative/derivative market -derivative securityA derivative is a financial instrument whose value is derived from the underlying asset. It’s an agreement that has theability to move risk from one party to another. With this in mind, discuss the advantages associated with use of Derivativesas a financial instrument.
- How are derivatives valued on the balance sheet? How is the adjustment to fair value recorded differently for a cash flow hedge versus a fair value hedge? That is, how does the fair value adjustment of each type of hedge affect current period net income and the accounting equation? What are the three criteria that must be met for a derivative to be classified as a hedge? Once entities decide to buy or sell derivatives to hedge economic risks, they then need to decide whether they want to use hedge accounting; it is an election, not a requirement, even when the derivatives are for the economic purpose of hedging. This election is reminiscent of inventory accounting. Just like when a company selects an inventory method, a company is not required to select the accounting method (LIFO, FIFO, weighted average, specific unit) that most closely corresponds with the physical movement of inventory, although they are free to do so. If entities decide to elect hedge accounting, the following…Define the terms, or give short explanations. -percentage return -price discovery -put -real asset -repurchase agreement (repo) -return -risk -risk aversionThe book value (or carrying value) of an asset should always match the asset's fair value on the balance sheet date. Choose one of the following options: True or False.
- Payoff from entering into a forward contract does the buyer have more to gain going long than the seller has to lose going short, profits if the price of the underlying at expiration exceeds the forward price and/or gains from owning the underlying versus owning the forward contract are equivalent? Explain why one or more of the options above are correct. and why, if any of the remaining options are incorrect.Which of the following is true about derivatives? a. Value of derivative is derived from predetermined asset b. The terms and conditions are flexible under derivative trading c. Derivative markets are suitable for low risk investors d. Risk on derivatives market are always low no need for explaination ..please only give answerWhat is the default classification for an equity investment? A Fair value through profit or loss B Fair value through other comprehensive income C Amortised cost D Net proceeds
- According to the fair value principle, assets and liabilities should be reported Select answer from the options below 1.at their fair market value. 2.at their historical cost. 3.at a value agreed upon by interested parties. 4.at cost plus inflation.Which of the following may be classified as a financial asset at fair value through profit or loss? Group of answer choices All of these A non-derivative equity instrument A derivative A non-derivative debt instrumentDifferentiate between the following types of markets: physical asset vs. financial markets, spot vs. futures markets, money vs. capital markets, primary vs. secondary markets, and public vs. private markets