🏷️ LIMITED TIME OFFER: GET 20% OFF GRADE+ YEARLY SUBSCRIPTION →
Log in
HomeStudy Guides420,000CA160,000

FIN 501 Study Guide - Futures Contract, Financial Instrument, Spot Contract

108 views2 pages
beigefish258
31 Jul 2012
School
Ryerson University
Department
Finance
Course
FIN 501
Professor
Edward Blinder

For unlimited access to Study Guides, a Grade+ subscription is required.

Document Summary

Futures contract: contract between a seller and a buyer specifying a commodity or financial instrument to be delivered and paid at contract maturity. Futures contracts are managed through an organized futures exchange. Futures price: price negotiated by buyer and seller at which the underlying commodity or financial instrument will be delivered and paid for to fulfill the obligations of a futures contract. Futures contract represents a zero-sum game between a buyer and a seller, the net value of a future contract is always zero. Long position: in futures jargon, refers to the contract buyer; profits from a futures price increase. Short position: in futures jargon, refers to the seller; profits from a futures price decrease. Speculator: trader who accepts price risk by going long or short to bet on the future direction of prices. Suppose the current futures price for delivery in 3 months is per ounce.

Get access

Grade+20% off
$8 USD/m$10 USD/m
Billed $96 USD annually
Grade+
Homework Help
Study Guides
Textbook Solutions
Class Notes
Textbook Notes
Booster Class
40 Verified Answers

Related Documents

FIN 501 Lecture Notes - Lecture 3: Fidelity Investments, Target Date Fund, Registered Retirement Savings Plan
azurelouse708
FIN 501 Chapter Notes - Chapter 4: Preferred Stock, Common Stock, Current Yield
beigefish258
FIN 501
Final Exam
Study Guide
FIN 501 Study Guide - Call Option, Put Option, Straddle
beigefish258

Related Questions

1.One distinction between futures and forward contracts is

Forward contracts can be used to hedge and speculate, while futures contracts are only used for hedging purposes.

Forward contracts are highly standardized.

Futures contracts mark to market.

Futures contracts highly specialized.

2.

If the spot price for the pound in terms of dollars decreases over a given amount of time, the futures price for pounds (in terms of USD) would likely decrease over that same time period.

True

False

9. Compare and contrast the commitments taken on by a futures contract seller versus a buyer of a put option. Compare and contrast the commitments taken on by a futures contract buyer versus a buyer of a call option.

Are the following statements consistent or inconsistent? Explain your answer and discuss how equilibrium is achieved between the futures and cash markets.

1. Futures markets serve an important function of the global financial markets by giving investors the opportunity to better manage financial risks associated with their underlying business transactions.

2. The futures market is where price discovery takes place.

3. The introduction of futures contracts creates greater price volatility for the underlying commodity or financial asset.