Chapter01 - Introduction Chapter 1 1 The Nature of...

Info iconThis preview shows pages 1–10. Sign up to view the full content.

View Full Document Right Arrow Icon
1 Introduction Chapter 1
Background image of page 1

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
2 The Nature of Derivatives A derivative is an instrument whose value depends on the values of other more basic underlying variables
Background image of page 2
3 Examples of Derivatives Futures Contracts Forward Contracts Swaps Options
Background image of page 3

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
4 Ways Derivatives are Used To hedge risks To speculate (take a view on the future direction of the market) To lock in an arbitrage profit To change the nature of a liability To change the nature of an investment without incurring the costs of selling one portfolio and buying another
Background image of page 4
5 Futures Contracts A futures contract is an agreement to buy or sell an asset at a certain time in the future for a certain price By contrast in a spot contract there is an agreement to buy or sell the asset immediately (or within a very short period of time)
Background image of page 5

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
6 Exchanges Trading Futures Chicago Board of Trade Chicago Mercantile Exchange LIFFE (London) Eurex (Europe) TIFFE (Tokyo) and many more (see list at end of book)
Background image of page 6
7 Futures Price The futures prices for a particular contract is the price at which you agree to buy or sell It is determined by supply and demand in the same way as a spot price
Background image of page 7

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
8 Electronic Trading Traditionally futures contracts have been traded using the open outcry system where traders physically meet on the floor of the exchange Increasingly this is being replaced by electronic trading where a computer matches buyers and sellers
Background image of page 8
9 Examples of Futures Contracts Agreement to: buy 100 oz. of gold @ US$400/oz. in December (NYMEX) sell £62,500 @ 1.5000 US$/£ in March (CME) sell 1,000 bbl. of oil @ US$20/bbl. in April (NYMEX)
Background image of page 9

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
Image of page 10
This is the end of the preview. Sign up to access the rest of the document.

This note was uploaded on 04/26/2011 for the course BUSINESS A 00 taught by Professor Misc during the Spring '11 term at Saint Louis.

Page1 / 30

Chapter01 - Introduction Chapter 1 1 The Nature of...

This preview shows document pages 1 - 10. Sign up to view the full document.

View Full Document Right Arrow Icon
Ask a homework question - tutors are online