Q19: Using Futures contract to transfer price risk is called     diversifying.     hedging     speculation     arbitrage

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: Users of commodities are: Answer a. Usually not participants in futures contracts. b. Speculators…

A: A Futures Contract is a derivative contract that creates an obligation on the buyer to purchase the…

Q: Q6: Which of the following features of futures contracts were not designed to increase liquidity?…

A: Liquidity of future contract can be increased by various features

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: 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: Which one of the following is correct regarding derivative securities? a. Options obligate investors…

A: Under stock market, there are certain methods through which the risk of loss can be reduced. This…

Q: Explain how a company can use the futures market to hedge against rising rawmaterials prices.

A: Answer: If the price of key raw materials is rising, then a company can hedge against the risk by…

Q: What is the spread (i.e., difference) between futures price and spot price called? a) Convergence…

A: The futures price is an estimated price the investor expected in the future.  The spot price is a…

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: : A futures contract is used for hedging. Carefully explain why the daily settlement of the contract…

A: in future contracts large amount of buying and selling is done and trades are done some initial…

Q: Identify the fundamental distinction between a futures contract and an option contract, and briefly…

A: Fundamental difference between a futures and option contract lies in following parameters:…

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: 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 one is correct please confirm? Q20: The main advantage of using options on futures contracts…

A: Options and futures contracts are two different alternatives to minimise the risk by setting a…

Q: Consider a stock that pays no dividends on which a futures contract, a call option, and a put option…

A: Put-call parity theorem: As per put-call parity theorem, there exist an equivalence relationship…

Q: Pick up the one(s) that can be contracted as OTC product. Choose all the correct answers. V Equity…

A: “Hi, there, Thanks for posting the question. As per our Q&A honour code, we must answer the…

Q: Which of the following increases basis risk? Select one: O a. A large difference between the futures…

A: Basis risk refers to the type of financial risk which arises due to a mismatch in the hedge…

Q: An increase in the volatility of the underlying asset, all other things held constant, will ______…

A: The option premium is the current value of the option contract. The option premium is the income…

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 two (2) similarities and two (2) differences between a futures contract and a forward…

A: Forward and futures contracts are the hedging tool against the exchange rate risk. The investor use…

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: Define each of the following terms:a. Derivative; natural hedgeb. Option; call option; put optionc.…

A: Hello. Since your question has multiple sub-parts, we will solve first three sub-parts for you. If…

Q: Changes in what price lead to gains and/or losses in futures contracts?

A: changes in underlying asset leads to gains and/or losses in future contracts.

Q: Users of commodities are: Answer a. Usually not participants in futures contracts. b. Speculators…

A: Option C. Buyers of Futures   Explanation: Future contracts allow the users of commodities to…

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: 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: 3.Spot futures parity is an equilibrium condition involving the following variables: A) stock price,…

A: 4. (b) when dealing with derivative market involving optionss 3 (a) stock price, exercise price,…

Q: Answer the following in a couple of sentences  c) Compare and contrast forwards with futures. d)…

A: Forward contract and future contract are good hedging options both are similar but there are some…

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.