International Financial Management
14th Edition
ISBN: 9780357130698
Author: Madura
Publisher: Cengage
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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.
How is that a currency futures contracts eliminate the possibilty of gaining a windfall profit from favorable movements ?
Explain why the forward interest rate is less than the corresponding futures interest rate calculated based on a Eurodollar futures contract.
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- If interest rate and stock price move in the same direction, then a futures price implied from spot-futures parity favorsarrow_forwardExplain 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 contractarrow_forward"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?arrow_forward
- Discuss the key differences between the operation of a currency forward market and a futures market.arrow_forwardAre futures prices always greater than the current spot price? Explainarrow_forwarda)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.arrow_forward
- Discuss the factors giving rise to an inverted futures market for a storable versus a non-storable commodity. What are the implications for a hedger?arrow_forwardM3 The terms "contango" and "backwardation" are used to describe term structures of forward/futures prices (i.e., patterns of forward/futures prices of various maturities). Please explain the meanings of these two terms and the situations in which they occur (i.e., the reasons for them). Also, consider futures prices of gold. Do you expect them to be in contango or backwardation? Why?arrow_forwardh) 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.arrow_forward
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