Discuss two (2) similarities and two (2) differences between a futures contract and a forward contract. When would the use of one be preferred over the other? Note: Use real-world Multi-National companies, when responding to the above questions
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- Discuss two (2) similarities and two (2) differences between a futures contract and a forward contract. When would the use of one be preferred over the other? Note: Use real-world Multi-National companies, when responding to the above questions
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- a) define the following, and discuss the difference between them at origination, before expiration, and at expiration. ◦forward price and the value of a forward contract ◦futures price and the value of a futures contract b) discuss the assumptions under which futures and forward prices can be considered the same. c) describe how to incorporate discrete and continuous dividends into futures contracts on stocks and stock indices. d) explain and discuss the use of interest rate parity in pricing foreign currency forwards and futures. e) describe how spot prices are determined using the cost-of-carry model.a)define and explain convenience yield, and describe how it is incorporated into the futures pricing model. b)discuss the debate on whether risk premium should be included in the pricing of futures and forward contracts. c) define backwardation, normal backwardation, contango, and normal contango. d) discuss the relationship between the prices of puts, calls, and forward/futures contracts on the same underlying asset using the put-call-forward/futures parity. e) discuss the boundary conditions on the prices of American and European call option contracts on futures.(a) Outline in detail what is meant by a forward and futures contract. Evaluate the relationship between futures price and spot price, and give reasons to justify the necessity for exchange margin accounts. (b) Explain the concept of cost of carry model and its role in the pricing of financial futures contracts.
- h) discuss the relationship between the prices of puts, calls, and forward/futures contracts on the same underlying asset using the put-call-forward/futures parity. i) discuss the boundary conditions on the prices of American and European call option contracts on futures. j) explain and discuss the use of interest rate parity in pricing foreign currency forwards and futures. k) describe how spot prices are determined using the cost-of-carry model.Which of the following is a reason why the default risk of a futures contract is assumed to be less than that of a forward contract? a. Forward contracts can be tailored, while future contracts are non-standardized. b. Forward contracts are classified as exotic derivatives. c. Futures contracts are exchange-traded contracts, daily settlements are implemented by the clearing house. d. More flexibility as the buyer can decide whether or not to exercise the contract at maturity. e. For futures contracts, all cash flows are required to be paid at one time on contract maturity.Discuss two similarities and two differences between a futures contract and a forward contract. When would the use of one be preferred over the other?
- Advantages of currency futures contracts relative to forward contracts include _ a. Higher liquidity b. Standardized contract specifications c. Freedom to sell the contract before maturity d. All of the aboveExplain the basic differences between the operation of a currency forward market and a futures market. Then, discuss the main difference in the obligation of one with a long position in futures (or forward) contract in comparison to an options contractA) What are the main differences between forward contracts and futures contracts. b) What is meant by the Exchange Delivery Settlement Price' (EDSP) of a fut
- a)describe the major differences between futures and forwards. b)describe delivery and settlement in derivative markets. c)describe financial engineering and hybrids. d)discuss the three presuppositions for a well-functioning financial market.Briefly discuss the relative advantages and disadvantages of an exchange-traded futures contract compared to a forward contract.In the derivative markets a swap is: * A. another name for a call option. B. another name for a put option. C. an agreement between two or more persons to exchange cash flows over some future period. D. the name for the exchange of a futures contract for an option contract.