FINS1612 Chapter 19: Viney8e_IRM_ch19
Document Summary
The open position is closed-out at the maturity date. Learning objective 2: discuss the main features of a futures transaction, including orders and agreement to trade, calculations, margin requirements, closing out a contract and contract delivery. This profit can then be used to offset the increased cost associated with the price rise in the physical market. Learning objective 4: identify the participants in the futures market, including hedgers, speculators, traders and arbitrageurs, and explain why they use futures contracts. Speculators increase price efficiency and liquidity in the futures market: traders conduct transactions on their own account or for clients. At a later date it will close-out its futures market position by buying an identical futures contract. The profit or loss made on the futures transactions will offset the net cost of borrowing. The difference in prices between the two markets is referred to as basis risk. Initial basis risk may occur at the implementation of.
