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Define each of the following terms:
a. Derivatives
b. Enterprise risk management
c. Financial futures; forward contract
d. Hedging; natural hedge; long hedge; short hedge; perfect hedge; symmetric hedge; asymmetric hedge
e. Swap; structured note
f. Commodity futures
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- Describe forwards, futures, and swaps. What are the features of each type of derivative and how are these derivatives used to hedge risk or speculate?a)describe the major differences between futures and forwards. b)describe delivery and settlement in derivative markets. c)describe financial engineering and hybrids. d)discuss the three presuppositions for a well-functioning financial market.a)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.
- Describe Derivatives Used to Hedge Risk.Which of the following is NOT an external method of interest rate risk management? * A. Using an interest rate swap B. Using financial futures C. Using an off-balance-sheet strategy, such as a forward rate agreement D. Having fixed-interest assets financed by fixed-interest liabilities and equityIdentify the major derivative securities used to hedge against risk.
- Identify which refers to the relationship of interest and time of maturity of securities. Group of answer choices a. Term structure of interest rates b. Phillip's Curve c. Equilibrium interest and quantity d. Equilibrium price and quantity.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) define the following, and discuss the difference between them at origination, before expiration, and at expiration. ◦forward price and the value of a forward contract ◦futures price and the value of a futures contract b) discuss the assumptions under which futures and forward prices can be considered the same. c) describe how to incorporate discrete and continuous dividends into futures contracts on stocks and stock indices. d) explain and discuss the use of interest rate parity in pricing foreign currency forwards and futures. e) describe how spot prices are determined using the cost-of-carry model.
- Match the vocabulary below with the following statements. • organized market,• maintenance margin,• standardized contract,• margin call• standardized expiration,• variation margin,• clearing corporation,• open interest,• daily recontracting• interest rate risk• marking to market• cross-hedge• convergence• delta-hedge• settlement price• delta-cross-hedge• default risk of a future• ruin risk• initial margin(a) Daily payment of the change in a forward or futures price.(b) The collateral deposited as a guarantee when a futures position is opened.(c) Daily payment of the discounted change in a forward price.(d) The minimum level of collateral on deposit as a guarantee for a futures position.(e) A hedge on a currency for which no futures contracts exist and for an expiration otherthan what the buyer or seller of the contract desires.(f) An additional deposit of collateral for a margin account that has fallen below itsmaintenance level.(g) A contract for a standardized number of units of a…Explain the term structure of interest rates and the relationships measured? Why is it important for all securities plotted on a given term structure to have equal default risk?Which one of the following is true ? A, CFDs are over - the - counter instruments that can be used to gain exposure to equities,bonds, currencies,futures and options. B, CFDs are over - the - counter instruments that can be used to gain exposure to equities, bonds, currencies, indices and commodities. C, CFDs are exchange - traded instruments that can be used to gain exposure to equities, bonds,currencies,futures and options. D, CFDs are exchange - traded instruments that can be used to gain exposure to equities,bonds,currencies, indices and commodities. ?