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Are you sure you want to Yes No. Embeds 0 No embeds. No notes for slide. Futures and Options 1. Without them the markets would lose their purpose and become mere tools of gambling.
These contracts are legally binding agreements, made on the trading screen of stock exchanges, to buy or sell an asset in future. The asset can be a share, index, interest rate, bond, rupee dollar exchange rate, sugar, crude oil, soybean, cotton, coffee and what have you.
The price of curd depends upon the price of milk which in turn depends upon the demand and supply of milk. Financial derivatives are financial instruments whose prices are derived from the prices of other financial instruments which are also know as underlying.
It relates to equities, loans, bonds, interest rates and currencies. This is an example of a forward contract. No money changes hands between Gold buyer and Gold seller at the time the forward contract is created. Suppose that the spot price reaches Rs. Then Gold buyer gains Rs. The counter party being in a monopoly situation can command the price he wants.
Motives BehinD usinG futuresHedging: It provides an insurance against an increase in the price. The futures market has two main types of foreseeable risk: Interest rate FuturesAn interest rate futures contract is anagreement to buy or sell a standard quantityof specific interest bearing instruments, at apredetermined future date and a priceagreed upon between parties OPtIOnsOptions contracts grant their purchasers theright but not the obligation to buy or sell aspecific amount of the underlying at aparticular price within a specified period.
One party makes a paymentto the other depending upon whether aprice is above or below a reference pricespecified in the swap contract.
Basically a forward It is combination of Forwards. It has all the properties of Forward contract. Double coincidence of wants It requires that two parties with equal and opposite needs must come into contact with each other.
Comparative credit advantage Borrowers enjoying comparative credit advantage in floating rate debts will enter into swap agreement. Flexibility Lenders have the flexibility to exchange floating rates according to the conditions prevailing in the market.
Necessity of an intermediary It requires two counter parties with opposite and matching needs. Thus it has created the necessity of an intermediary.
Settlements Even though the principal amount is mentioned it is not exchanged. Here stream of fixed rate is exchanged for floating rate interest. Long term agreement Forwards are for short term. Long dated forward contracts are not preferred because they involve more risk. Start clipping No thanks. You just clipped your first slide! Clipping is a handy way to collect important slides you want to go back to later.
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