Identify the fundamental distinction between a futures contract and an option contract, and briefly 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: What is the Futures and Options Market? What are the features? Provide information about the Futures…

A: Futures contract is a legal contract which is standardized in nature. The contract is used by market…

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: a) Futures contracts and options on futures contracts can be used to modify risk. Required:Identify…

A: The derivatives are the contract which obtains its value from some underlying asset and earns return…

Q: What is basis risk in relation to futures contract hegding?

A: Basis Risk:Basis risk is a financial risk which arises from the incompatibility in the positions of…

Q: What is the purpose of initial and maintenance margins? How does marking to market affect the amount…

A: Margins: Margins allow individuals who'd like to trade to borrow funds from brokers or brokerage…

Q: Explain in detail with an example how the change of the variables (like Stock Price, Exercise Price,…

A: Black Scholes Merton is an option valuation model. In Black Scholes Merton formula, there are five…

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: Discuss two similarities and two differences between a futures contract and a forward contract. When…

A: Future Contract: A futures contract is a legally binding agreement to purchase or sell a certain…

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: Basis risk refers to the risk: a. associated with unanticipated price movements on the underlying…

A: Basis risk =  spot price of underlying instrument - future price of the underlying instrument.…

Q: Describe how a risk-free hedge portfolio can be created using stocks and options.

A: A risk-free hedge portfolio can be created by the usage of stocks and options by the following…

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: What is a normal market for futures? What does an inverted futures curve indicate?

A: The future refers to the legal agreement between the buyer and the seller to exchange underlying…

Q: illustrate the use of derivatives to hedge portfolio risk with an example?

A: A derivative is depicted as an investment procedure outlined to assist the financial specialist to…

Q: Describe how a risk-free hedge portfolio can be created usingstocks and options

A: Hedging: The transaction that deceases the risk of the firm that can take place due to fluctuations…

Q: What is a futures contract?

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

Q: Explain the Use of Derivatives to Hedge Portfolio Risk?

A: The contract whose value derives from the fluctuation of values of the underlying assets is called…

Q: How do forwards, futures, and swaps hedge risk?

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

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: 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: a) Futures contracts and options on futures contracts can be used to modify risk.Required:Identify…

A: Future contracts:  The future contracts are legal derivative contracts to buy or sell an underlying…

Q: Define each of the following terms: c. Financial futures; forward contract

A: Financial futures can also be called as futures helps in trading of non physical assets either for…

Q: in options trading, margin must be posted by______

A: Margin is a amount of cash or securities that is necessary to deposit before executing trade in…

Q: What are advantages of futures options over spot options?

A: Futures: The contract to buy or sell assets at predefined prices but will be paid and delivered…

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.