IFM10 Ch01 WebExt 1B

IFM10 Ch01 WebExt 1B - Chapter1 WebExtension1B...

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Chapter 1 Web Extension 1B An Overview of Derivatives
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Topics in Web Extension Overview of derivatives Forward contracts Futures contracts Options Swaps
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Forward Contracts 2 parties to contract, each with a basic position: One party is “long” (buy).  Obligates party to buy the  underlying asset at some fixed price at a specified date in  the future. One party is “short” (sell). Obligates party to sell the  underlying asset at some fixed price at a specified date in  the future. Terms Forward price Delivery date (expiration date) Forward contracts are common for currencies.
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Hedging Risk with Forward  Contracts US wine importer might plan on purchasing French  wine with euros in the fall.  Could lock in the currency  exchange rate for the fall by taking a long position in  a euro currency forward contract. US computer manufacturer might plan on selling 
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IFM10 Ch01 WebExt 1B - Chapter1 WebExtension1B...

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