The purpose of the hedger in futures trading is () A. Transfer price risk B. Transfer ownership of goods C. Obtain risky profits D. Obtain physical goods
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The purpose of the hedger in futures trading is ()
A. Transfer price risk B. Transfer ownership of goods
C. Obtain risky profits D. Obtain physical goods
Step by step
Solved in 4 steps
- Basis risk refers to the risk: a. associated with unanticipated price movements on the underlying asset. b. of default on the futures contract. c. associated with anticipated price movements in the cash market. d. from a change in the spread between the price on the commodity or financial security in the physical market and the price of the related futures contract.Define each of the following terms: a. Derivatives b. Enterprise risk management c. Financial futures; forward contract d. Hedging; natural hedge; long hedge; short hedge; perfect hedge; symmetric hedge; asymmetric hedge e. Swap; structured note f. Commodity futuresDiscuss the factors giving rise to an inverted futures market for a storable versus a non-storable commodity. What are the implications for a hedger?
- (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.Suppose a company knows the quantity of a commodity that it willproduce. Describe how it might hedge using a futures contract.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.
- Which of the following is an exchange risk management technique through which the firmcontracts with a third party to pass exchange risk onto that party, via instruments such as forwardcontracts, futures, and options? a. Risk Transfer b. Risk Avoidance c. Risk Adaptation d. Diversification"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?Explain why a futures contract can be used for either hedging or speculation.
- Which of the following is NOT an external method of interest rate risk management? * A. Using an interest rate swap B. Using financial futures C. Using an off-balance-sheet strategy, such as a forward rate agreement D. Having fixed-interest assets financed by fixed-interest liabilities and equitya)define interest rate swaptions, and differentiate between payer swaptions and receiver swaptions. b)define forward swaps. c)define risk management. d)discuss reasons for practicing risk management. e)discuss how firms can benefit from risk management.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.