Lecture%2018 - Lecture 18 Introduction to Financial Futures...

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Lecture 18 Introduction to Financial Futures Markets I. Futures Contracts Definition: Futures Contract: An agreement that obligates a party to the agreement to buy or sell a fixed amount of a standardized commodity at a designated future date and a pre-determined price. A) Anatomy of a Futures Trade Cash Cash Buyer Clearinghouse Seller Bonds Bonds Futures contracts are transacted through a clearinghouse . The Futures contract is a legal obligation between the buyer or seller of the contract and the clearinghouse. When a buyer of a futures contract purchases a contract on an exchange the contract calls for the delivery of a set amount of the standardized commodity to the buyer of this contract by the exchange’s clearinghouse. Likewise, the seller of a futures contract is obligated to deliver a fixed amount of the standardized commodity to the exchange’s clearing house. The price that the commodity is sold for is known as the futures price . Example: Suppose I wish to buy a US T-Bond contract. This is a contract that requires the buyer to of the contract to take delivery of U.S. Treasury bonds with at least 15-years till maturity and $100,000 face value. The buyer of this contract must take delivery of these bonds on the third Friday of the contract month. The price the buyer is obligated to pay for these bonds on the delivery date is the futures price that he purchased the
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This note was uploaded on 04/12/2008 for the course ECON 435 taught by Professor Chabot during the Winter '08 term at University of Michigan.

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Lecture%2018 - Lecture 18 Introduction to Financial Futures...

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