Chapter 10 - Chapter 10: Introduction to Financial Futures...

Info iconThis preview shows page 1. Sign up to view the full content.

View Full Document Right Arrow Icon
Chapter 10: Introduction to Financial Futures Markets Futures contract – agreement that requires a party to either buys/sell something at a designated future date at a predetermined price I. Mechanics of Futures Trading - clearinghouse guarantees the two parties transactions will occur - additional margin deposited is variation margin - rationale for daily price limits is that they provide time for market participants to digest or reassess new information that causes futures price to exhibit extreme fluctuations Forward contract – nonstandard (terms negotiated individually) and no clearinghouse coordinates forward trading; over the counter instrument - parties exposed to credit risk because either party may default on obligation Reverse cash and carry trade – strategy a security is sold short and proceeds received from the short sale are invested Cash and carry trade – involves borrowing cash to purchase a security to the futures settlement date - interest rate for borrowing and lending until the settlement is the
Background image of page 1
This is the end of the preview. Sign up to access the rest of the document.

This note was uploaded on 04/01/2008 for the course ECON 435 taught by Professor Chabot during the Winter '08 term at University of Michigan.

Ask a homework question - tutors are online