a) Define Forwards and Futures. b)Explain the differences between these instruments and how these derivatives are used to mitigate risk. nb: answer question a and b
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a) Define Forwards and Futures.
b)Explain the differences between these instruments and how these derivatives are used to mitigate risk.
nb: answer question a and b
Step by step
Solved in 4 steps
- a) Futures contracts and options on futures contracts can be used to modify risk. Required:Identify the fundamental distinction between a futures contract and an option on a futures contract and explain the difference in the manner that futures and options modify portfolio risk.a) Futures contracts and options on futures contracts can be used to modify risk.Required:Identify the fundamental distinction between a futures contract and an option on a futures contract and explain the difference in the manner that futures and options modify portfolio riskDistinguish between (2) spot and futures markets
- Highlight the key difference between option, futures and forward contracts.3.How can options, futures, and forward contracts be used to devise simple hedging strategies? Discuss similarities and differences between futures contracts and forward contracts.Explain what is meant by forward contracts and futures using examples. List the main advantages / disadvantages for their use.
- Address the similarity and differences between option and forward/futures contracts.What is the difference between forward and futures contracts, focusing on the pros and cons of each.4. Outline and discuss the role of derivatives in risk management with particular reference to the history of derivatives, the types of derivative and the hedging opportunities available.
- (a) Outline in detail what is meant by a forward and futures contract. Evaluate the relationship between futures price and spot price, and give reasons to justify the necessity for exchange margin accounts. (b) Explain the concept of cost of carry model and its role in the pricing of financial futures contracts.Discuss the difference between forward and futures contracts, focusing on the pros and cons of each.What is the main purpose of a hedging strategy using a forward contract or a futures contract? Explain very briefly.