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If interest rate and stock price move in the same direction, then a futures price implied from spot-futures parity favors
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- "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?What is the spread (i.e., difference) between futures price and spot price called? a) Convergence b) Basis risk c) Market risk d) Credit riskSpot vs. Futures prices Briefly explain the following: a. Basis b. Contango c. Backwardation
- 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.Use your own word to explain the spot versus Futures prices. a. what is Backwardation b. What is Contango c. What is BasisDiscuss the factors giving rise to an inverted futures market for a storable versus a non-storable commodity. What are the implications for a hedger?
- How does the put-call parity formula for a futures option differ from put-call parity for an optionon a non-dividend-paying stock?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.At the expiration of a futures contract, futures prices converge to __. a. Option prices b. forward prices c. market prices d. spot prices
- Changes in what price lead to gains and/or losses in futures contracts?Financial Futures Markets: Explain how sellers of financial futures contracts can offset their position. How is their gain or loss determined? Note: there are 2 parts to this question.What is the key difference between futures contracts and options?