RSM333H1 Chapter Notes - Chapter 11.1, 11.2, 14.4: Libor, Forward Contract, Forward Price
Document Summary
Underlying assets the securities on which derivative contracts are based. 2 basic types: forwards, futures, and swaps, options. Forward contract a price that is established today for future delivery. Spot contract a price that is established today for immediate delivery. Because forward rates are the price today for future delivery, they reflect the fact that foreign currency is not worth the same amount when it is received at different points in time. Buying or selling a forward contract requires that a customer have a banking relationship. Forwards are over the counter (otc) markets. They are traded otc with a principal. Forwards can be tailored to any specific date in the future and for any amount of money. Speculate make an educated guess about the fv of something in hopes of profiting from it. Naked position a position that leaves the investor exposed to changes in the value of the underlying asset.
