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.

Q: Describe each of the following derivative instruments and suggest a specific risky situation that…

A: All of these derivatives instruments defined below.

Q: Describe the basis of Futures contracts and discuss the potential risks and rewards.

A: An agreement where there are two parties, say one is a buyer and another one is a seller decides to…

Q: Critically explain with examples the concept of futures and the differences between options and…

A: Futures in a type of derivative product in which there is a contract that is agreed in between two…

Q: What is a FUTURES CONTRACT and what are its key components

A: Derivatives are those securities, the value of which depends on another security. There are few…

Q: The advantage of using a forward rate agreement FRA over a futures contract is: *       A. FRAs are…

A: FRA and Future Contracts are two type of arrangements. FRA means forward rate agreements in which it…

Q: Thoroughly describe the concept of hedging, focusing on the FX markets. In addition to the economic…

A: Foreign exchange market is defined as the globally decentralized or an over the counter market…

Q: Advantages of currency futures contracts relative to forward contracts include _     a. Higher…

A: A futures contract is a legal contract to purchase or sell an underlying asset or security at a…

Q: The upper and lower bounds on option prices must be satisfied irrespective of the underlying price…

A: Options are financial instruments that provide investors with the right but not the obligation to…

Q: Briefly explain the pay-off structure of futures and options contract. Also make it more clear with…

A: Futures are the derivative contract where you get the rights as well as the obligations. For example…

Q: Compare and contrast the commitments taken on by the following:   A futures contract seller versus a…

A: A futures contract seller is a party who has agreed to sell a particular asset at a particular…

Q: MCQ: The type of option that gives the right to buyer to sell the underlying option at spe price is…

A: A put option is an instrument which provides its holder an option to sell an underlying asset on a…

Q: .How can options, futures, and forward contracts be used to devise simple hedging strategies?…

A: Options, futures and forwards are derivative contracts that can be used to hedge the underlying…

Q: Design a forward contract on a stock with a particular delivery price and delivery date as a…

A: To generate an offsetting forward position, a synthetic forward contract utilities call and put…

Q: describe the major differences between futures and forwards.   b)describe delivery and settlement…

A: A derivative is a financial contract whose value is derived from the underlying asset, which could…

Q: Discuss the advantages and disadvantages of using options to hedge as compared to using futures…

A: Introduction: The future is the financial instrument of the derivative market in which a buyer and…

Q: describe the major differences between forward contracts and option contracts.       b)discuss…

A: An option is a type of financial instrument that is based on the value of underlying securities,…

Q: What is the process that makes sure the market price of an underlying asset equals the price of a…

A: Futures contract is a derivative instrument in which the price of the underlying asset in fixed for…

Q: detail two procedures which the seller of a futures contract can use to lock in a gain at some time…

A: A futures contract is a legally binding agreement to acquire or sell a certain commodity, asset, or…

Q: hy might an individual purchase futures contracts, rather than the underlying assets? Please…

A: Future contracts are derivative contracts that means they derive value from the underlying assets…

Q: Explain the main differences between futures contracts and forward contracts.

A: Solution- Future Contract-        A derivative may be a legal agreement to shop for or sell a…

Q: Outline and discuss the role of derivatives in risk management with particular reference to the…

A: Financial instruments known as derivatives are those that are generated from other assets like…

Q: The most popular type of derivative securities is options. Discuss what is an option? Define calls…

A: Option is a type of derivative instrument which gives a right, not the obligation to the holder to…

Q: Borrowing Choose.. V Choose... Contract No es Contract Yes Choose... n contract Choose... rd…

A: There are many instruments available for hedging the receivables.

Q: The purpose of the hedger in futures trading is ()   A. Transfer price risk                  B.…

A: Hedging is a technique in which risks in underlying assets are managed or reduced by adopting…

Q: If spot price falls below the exercise price, seller of a futures contract makes a ______ while…

A: Futures . Futures are derivative that are entered to mitigate risk with regard to price movements.…

Q: Distinguish the forward market from the futures market (included in your answer how counter-party…

A: A futures contract is a standardized financial instrument to either buy or sell an asset at a…

Q: Discuss the objectives of a clearing house in the future market.

A: A clearing house act as an intermediary between the buyers and sellers of financial instruments.…

Q: The major difference between futures and options arises from the different obligations of buyers…

A: In futures contract, both the buyer and seller of the contract are obligated to buy and sell the…

Q: Show graphically and explain the profits and losses of buying futures relative to buying call…

A: If an investor buys Future contract or Call Option Suppose the investor buys a call option at…

Q: What are the main differences between forward contracts and futures contracts. b) What is meant by…

A: Since you have asked multiple questions, we will solve the first question for you. Please ask…

Q: Which type of financial derivative is used to protect against adverse price movements in an asset?…

A: Financial derivatives are instruments whose value derives from the underlying assets or securities,…

Q: One difference between futures contracts and forward contracts is that futures contracts are…

A: In forward and futures contracts, two parties agree to acquire or sell a specified asset at a…

Q: A seller of a futures contract can choose not to deliver the underlying asset. True O False

A: Future Contracts refers to a legal agreement or contract between the buyers or sellers to buy…

Q: Futures contracts offer more flexible terms than a forward contract. True False

A: Futures and Forward contracts are contracts which allows to buy or sell an underlying asset at a…

Q: What are the key differences between future and forward contracts? a) direct contract for forwards…

A: Future and forward contracts are both financial instruments used for hedging and speculative…

Q: Explain what is meant by “initial margin” on a futures contract

A: A futures contract is a type of common financial agreement that specifies a future date and price at…

Q: Futures trading arrangements ensures that the seller of the futures contract will deliver the…

A: The main role of a Clearing house is to perform the duty of a mediator between two parties entering…

Q: Define the terms, or give short explanations.             -naked short sale -notional amount…

A: A derivative is a financial contract whose value is derived from the underlying asset, which could…

Q: What is a futures contract?

A: Derivatives: Derivatives are some financial instruments which are meant for managing risk and…

Q: Explain the nature of an option contract.

A: An option contract is a financial derivative instrument that gives the holder the right, but not the…

Q: Explain why futures contracts may mitigate the credit risk involved in forward contracts.

A: Forward and future contracts are two types of risk management and hedging strategies.

Q: With the help of examples, explain how futures contracts can be used to reduce systematic risk in…

A: The future contract are important part of hedging and other strategy.   The value is based on the…

Q: Referring to the standards that mention in the table below, compare between options and futures…

A: Answer: Option contract is nothing but an arrangement that gives the buyer the option of either…