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: Explain the difference between a call option and a long position in a futures contract.

A: Both the options and futures are derivative contracts.

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 are the main differences between options and warrant contracts and forward and futures…

A: The difference among options and warrant contract:

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: Discuss the factors giving rise to an inverted futures market for a storable versus a non-storable…

A: The inverted futures market for storable goods exists when the short-term deal costs are more…

Q: What is the difference between forward and futures contracts, focusing on the pros and cons of each

A: In certain ways future and forward deals are similar: both include the buying and selling of assets…

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: “Hedging is the basic function of futures market”. Discuss the statement in the light of uses of…

A: Hedging means constructing a fence around it. In financial markets hedging implies eliminating the…

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: The market price paid for an option is best defined as: a. The strike price of the option b. The…

A: Options are of two types Call and put

Q: Highlight the key difference between option, futures and forward contracts.

A: Option, futures and forwards are three examples of financial derivatives. Option gives traders the…

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: In the futures markets the buyer of a financial futures contract: a. has the obligation to deliver…

A: A future contract is a legal agreement to buy or sell a particular commodity at predetermined price…

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: Describe forwards, futures, and swaps.  What are the features of each type of derivative and how are…

A: A forward contract may be a personalized contract between 2 parties purchasing or offering an asset…

Q: What is ‘basis’ and what is ‘basis risk’ within the context of futures hedging. Briefly discuss what…

A: Future markets are derivative products that means they derive the prices from the underlying assets…

Q: Discuss the difference between forward and futures contracts, focusing on the pros and cons of each.

A: Hedge:   An investment strategy that is formed to reduce the risk of the adverse price movement of…

Q: Address the similarity and differences between option and forward/futures contracts.

A: An option contract is referred to as the promise, which used to meet the requirements regarding the…

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

A: In a futures contractIt is a contract entered in which the buyer who agreed to buy the particular…

Q: Explain why a futures contract can be used for either hedging or speculation.

A: Hedging and speculation are the strategies which are used by investors while trading. Hedging is…

Q: Jaleel knows that the primary purpose of a futures contract is the management ofrisk exposures. Use…

A: Future contract:  A futures contract is legitimately official consent to buy or sell a particular…

Q: Which of the following statements is the most accurate for a long dated hedge using futures…

A: A futures contract is a contract for the purchase or sale of an underlying asset. Identifying the…

Q: Call option contains the right to ____ a futures contract

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

Q: How does a futures contract differ from a forward contract?

A: Derivatives: A derivative is defined as a financial instrument whose value is derived from the value…

Q: Explain the difference between a put option and a short position in a futures contract.

A: The question is based on the basic concept of derivatives contract, an investor can create different…

Q: ontains the right to ____ a futures contr

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

Q: What is a difference between Futures Contract and Forwards Contract?

A: Forward contract: This is an agreement between two parties to trade on a asset at a specified price…

Q: What apparatus exists to facilitate purchases and sales of futures contracts?

A: The question is based on the concept of trading in future contract in derivative segment of stock…

Q: At the expiration of a futures contract, futures prices converge to __.     a. Option prices b.…

A: Future contract is the obligation of buying or selling the underlying at pre determined price at…

Q: When trading a call option on futures, you have the to buy the futures contract at the strike price…

A: An option on a futures contract gives the holder the right, but not the obligation, to buy or sell a…

Q: Equating theoretical option price and the market option price, we can solve for implied indicators.…

A: Option price is based on  1) Strike price  2) volatility  3) risk free rate  4) spot price

Q: Describe how the price of a futures contract is established in theory, with reference to arbitrage.

A: The concept of Future Price determination is simple:- Theoretical Future price is calculated based…

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

A: Payoff is profit and loss forecast or likely profit with change in underlying price. Whenever…

Q: the difference in the manner that futures and options modify portfolio riks

A: Future contracts are those whose value is determined by the underlying assets. These contracts are…

Exchange Rate Risk

It is the possibility that the value of a currency will fluctuate in the future. In the wake of globalization, business establishments have increasingly ventured into international markets. The volume of international trade has prospered excellently in the near past and is expected to be more affluent in the future. The use of exchange-traded derivative financial instruments has been multi-folded to provide for the requirements of various MNCs and offshore potential investors. Most banks and financial institutions have helped integrate the global economies. Our Government has introduced some bold and extreme measures to fulfil the purpose behind the fiscal, industrial, and monetary policies. The enactment of GST is a huge step towards streamlining the taxation system of the country. Owing to Covid-19, this aspect of corporate risk management has become critical.