"Futures contracts allow individual investors to protect themselves against volatility in interest rates, exchanges rates, commodity prices and share prices" Do you agree with statement ? Explain

Q: Explain why the price of an expiring futures contract must be approximately equal to the spot price…

A: The spot price is the current market price at which a particular asset, such as security, commodity,…

Q: Advantages of currency futures contracts relative to forward contracts include _     a. Higher…

A: A futures contract is a legal contract to purchase or sell an underlying asset or security at a…

Q: The market that deals in futures and options is called O a Over-the-counter market Ob. Derivatives…

A: Financial markets are the markets that play the role of intermediaries between the buyers and…

Q: Which of below are examples of derivative security? A) A common share of Microsoft. B) A call option…

A: A derivative is a financial security that derives its value from an underlying asset or group of the…

Q: Which one of the following is correct regarding derivative securities? a. Options obligate investors…

A: Under stock market, there are certain methods through which the risk of loss can be reduced. This…

Q: Discuss the advantages and disadvantages of using options to hedge as compared to using futures…

A: Introduction: The future is the financial instrument of the derivative market in which a buyer and…

Q: Basis risk refers to the risk: a. associated with unanticipated price movements on the underlying…

A: Basis risk =  spot price of underlying instrument - future price of the underlying instrument.…

Q: Explain why the forward interest rate is less than the corresponding futures interest rate…

A: Solution- Reason why the Forward Interest Rate is Less tha the Corresponding Futures interest rate…

Q: What is a futures contract, and how are futuresused to manage risk? What are you protectingagainst…

A: Answer: Future contracts are an agreement to buy or sell anything on a specified future date. Two…

Q: The major difference between futures and options arises from the different obligations of buyers…

A: In futures contract, both the buyer and seller of the contract are obligated to buy and sell the…

Q: Suppose a company knows the quantity of a commodity that it willproduce. Describe how it might hedge…

A: Introduction: Hedging is one form of investment in the concept of risk management system. It is an…

Q: se your own word to explain the spot versus Futures prices. a. what is Backwardation b. What is…

A: Spot price is the current market price of a security at which it can be traded in the market, that…

Q: A hedger buys a futures contract, taking a long position in the wheat futures market. What are the…

A: Hedger: A hedger is a person who takes an offset position to the investment to protect from the…

Q: Using an example, discuss the possible effect of hedging on a firm’s tax obligations.

A: Given that these are two separate questions, we will answer the first one according to Bartleby…

Q: Explain why futures contracts may mitigate the credit risk involved in forward contracts.

A: Forward and future contracts are two types of risk management and hedging strategies.

Q: How is that a currency futures contracts eliminate the possibilty of gaining a windfall profit from…

A: As the futures or forward contract guards the buyer of the contract from the unfavourable exchange…

Q: The fact that the clearinghouse is the counterparty to every futures contract issued is important…

A: Risk is the uncertainty or potential loss in an investment decision.

Q: The ability to buy on margin is one advantage of futures. Another is the ease with which one can…

A: The question is based on the concept of future derivative contract, which is define as an exchange…

Q: Why might individuals purchase futures contracts rather than the underlying asset?

A: Futures are derivative contracts, the price movement of a derivative contract (like futures) is…

Q: 3.Spot futures parity is an equilibrium condition involving the following variables: A) stock price,…

A: 4. (b) when dealing with derivative market involving optionss 3 (a) stock price, exercise price,…

Q: 2.) In your own words, explain why the index futures is an important class of derivative securities.…

A: Indexed futures are basically the futures listed on the stock exchanges. Futures are derivatives…

Q: Describe how the price of a futures contract is established in theory, with reference to arbitrage.

A: The concept of Future Price determination is simple:- Theoretical Future price is calculated based…

Risk Management Techniques

Risk management is the procedure of recognizing, analyzing, monitoring, and preventing the risks and threatening factors of investments and business. Risks can arise from various factors including internal controls, market changes, natural disasters, and failure in productions. Risk management techniques enable entities to control and minimize the risks as well as the threatening factors of the business and it also helps to improve the business.