FIN 4313 Chapter Notes - Chapter 11: Forward Price, Forward Market, Spot Market
Document Summary
Chapter 11: derivatives markets: financial derivative securities: derive their value from changes in the value of other assets, values, or events. Generate substantial fee income for the financial institutions that invent and market them: almost always involve leverage, for a small investment, one can earn the gain (or loss) on a much larger position, leverage makes derivatives risky. The nature of derivative securities: derivative security- a financial instrument whose value depends on, or is derived from, some underlying security. Most common are forwards, futures, options, and swaps: part of a successful risk management program, offer an inexpensive means of changing a firm"s risk profile, common risk facts: Let people guarantee a currency exchange rate at some specific forward point: spot market- the market for immediate delivery of foreign exchange. Exporters do not want to risk their profits by gambling that they can predict it.
