ADMN 4300H Lecture Notes - Lecture 17: Chicago Mercantile Exchange, Cme Group, Futures Contract
Document Summary
Speculating is when a firm increases its exposure to a risk, in hopes of making a profit. Forward contracts: a forward contract specifies that a certain commodity will be exchanged for another at a specified time in the future at prices specified today. It"s not an option: both parties are obligated to hold up their end of the deal. If you have ever ordered a textbook that was not in stock, you have entered into a forward contract. Futures contracts: preliminaries: a futures contract is like a forward contract: It specifies that a certain commodity will be exchanged for another at a specified time in the future at prices specified today: a futures contract is different from a forward: Futures are standardized contracts trading on organized exchanges with daily resettlement ( marking to market ) through a clearinghouse. Initial margin: about 4% of contract value, cash or t-bills held by brokerage firm.