What are the key differences between future and forward contracts? a) direct contract for forwards b) clearing house for futures c) futures have less risk d) futures have a standard amount
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- Explain what is meant by “initial margin” on a futures contractWhat is a futures contract? What are the key differences between forward andfutures contracts?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
- a) Define Forwards and Futures. b)Explain the differences between these instruments and how these derivatives are used to mitigate risk. nb: answer question a and ba) 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.What is the difference between forward and futures contracts, focusing on the pros and cons of each.
- (a) Outline in detail what is meant by a forward and futures contract. Evaluate the relationship between futures price and spot price, and give reasons to justify the necessity for exchange margin accounts. (b) Explain the concept of cost of carry model and its role in the pricing of financial futures contracts.What is the main purpose of a hedging strategy using a forward contract or a futures contract? Explain very briefly.Explain the difference between a call option and a long position in a futures contract.
- Explain the main differences between futures contracts and forward contracts.Which of the following is a reason why the default risk of a futures contract is assumed to be less than that of a forward contract? a. Forward contracts can be tailored, while future contracts are non-standardized. b. Forward contracts are classified as exotic derivatives. c. Futures contracts are exchange-traded contracts, daily settlements are implemented by the clearing house. d. More flexibility as the buyer can decide whether or not to exercise the contract at maturity. e. For futures contracts, all cash flows are required to be paid at one time on contract maturity.3.How can options, futures, and forward contracts be used to devise simple hedging strategies? Discuss similarities and differences between futures contracts and forward contracts.