Essentials Of Investments
11th Edition
ISBN: 9781260013924
Author: Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher: Mcgraw-hill Education,
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Transcribed Image Text:a) If you must buy some asset in future and you just want to hedge the risk what sort of
derivative trading will you do? Explain in brief with payoff diagram.
b) If you have long position in one asset and you want to hedge the risk of price drop in that
asset while still having the upside in case the asset price goes up, what sort of derivative
trading will you do? Explain in brief with payoff diagram.
c) Briefly explain the benefits of having a thriving capital markets even in an economy like
India where banking system provides most of the funding to firms.
d) What are the four types of traders? Name two types who facilitate the price discovery
process and briefly state how do they facilitate?
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- What are advantages and disadvantages of using derivatives? Discuss. Provide examples. Explain how leverage is built into derivatives. Provide examples.arrow_forwardWhat is the main purpose of a hedging strategy using a forward contract or a futures contract? Explain very briefly.arrow_forwarda)define interest rate swaptions, and differentiate between payer swaptions and receiver swaptions. b)define forward swaps. c)define risk management. d)discuss reasons for practicing risk management. e)discuss how firms can benefit from risk management.arrow_forward
- Forwards and Futures: How are forwards and futures similar? How are they different? Briefly explain Advantages/Risks: What are the advantages and risks associated with these derivative instruments?arrow_forwarddescribe the process of short selling. define the theoretical fair value of an asset and relate it to the concept of market efficiency. discuss and relate the concepts of arbitrage and the law of one price. describe how and why risk is transferred from hedgers to speculators in derivative markets.arrow_forward2arrow_forward
- 4. What is an efficient market and why is it important for derivatives markets? 5. What types of transaction costs are you faced with when trading options?arrow_forwardWhat is the correct strategy when the asset backing the futures contract differs from the asset whose price is being hedged? O Short hedge O Long hedge O Perfect hedge O Tailing the hedge O Cross hedgearrow_forward
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