Ch01 - Introduction Chapter 1 Fundamentals of Futures and...

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Fundamentals of Futures and Options Markets , 6 th Edition, Copyright © John C. Hull 2007 1.1 Introduction Chapter 1
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Fundamentals of Futures and Options Markets , 6 th Edition, Copyright © John C. Hull 2007 1.2 The Nature of Derivatives A derivative is an instrument whose value depends on the values of other more basic underlying variables
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Fundamentals of Futures and Options Markets , 6 th Edition, Copyright © John C. Hull 2007 1.3 Examples of Derivatives Futures Contracts Forward Contracts Swaps Options
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Fundamentals of Futures and Options Markets , 6 th Edition, Copyright © John C. Hull 2007 1.4 Ways Derivatives are Used z To hedge risks z To speculate (take a view on the future direction of the market) z To lock in an arbitrage profit z To change the nature of a liability z To change the nature of an investment without incurring the costs of selling one portfolio and buying another
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Fundamentals of Futures and Options Markets , 6 th Edition, Copyright © John C. Hull 2007 1.5 Futures Contracts z A futures contract is an agreement to buy or sell an asset at a certain time in the future for a certain price z 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)
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Fundamentals of Futures and Options Markets , 6 th Edition, Copyright © John C. Hull 2007 1.6 Exchanges Trading Futures z Chicago Board of Trade z Chicago Mercantile Exchange z Euronext z Eurex z z and many more (see list at end of book)
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Fundamentals of Futures and Options Markets , 6 th Edition, Copyright © John C. Hull 2007 1.7 Futures Price z The futures prices for a particular contract is the price at which you agree to buy or sell z It is determined by supply and demand in the same way as a spot price
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Fundamentals of Futures and Options Markets , 6 th Edition, Copyright © John C. Hull 2007 1.8 Electronic Trading z Traditionally futures contracts have been traded using the open outcry system where traders physically meet on the floor of the exchange z Increasingly this is being replaced by electronic trading where a computer matches buyers and sellers
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, 6 th Edition, Copyright © John C. Hull 2007 1.9 Examples of Futures Contracts Agreement to: z buy 100 oz. of gold @ US$600/oz. in
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This note was uploaded on 05/10/2011 for the course MGT D72 taught by Professor Chau during the Spring '11 term at University of Toronto.

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Ch01 - Introduction Chapter 1 Fundamentals of Futures and...

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