Ch02 - Mechanics of Futures Markets Chapter 2 Fundamentals...

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Fundamentals of Futures and Options Markets , 6 th Edition, Copyright © John C. Hull 2007 2.1 Mechanics of Futures Markets Chapter 2
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Fundamentals of Futures and Options Markets , 6 th Edition, Copyright © John C. Hull 2007 2.2 Futures Contracts z Available on a wide range of underlyings z Exchange traded z Specifications need to be defined: z What can be delivered, z Where it can be delivered, & z When it can be delivered z Settled daily
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Fundamentals of Futures and Options Markets , 6 th Edition, Copyright © John C. Hull 2007 2.3 Margins z A margin is cash or marketable securities deposited by an investor with his or her broker z The balance in the margin account is adjusted to reflect daily settlement z Margins minimize the possibility of a loss through a default on a contract
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Fundamentals of Futures and Options Markets , 6 th Edition, Copyright © John C. Hull 2007 2.4 Example of a Futures Trade z An investor takes a long position in 2 December gold futures contracts on June 5 z contract size is 100 oz. z futures price is US$400 z margin requirement is US$2,000/contract (US$4,000 in total) z maintenance margin is US$1,500/contract (US$3,000 in total)
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Fundamentals of Futures and Options Markets , 6 th Edition, Copyright © John C. Hull 2007 2.5 A Possible Outcome Table 2.1, Page 27 Daily Cumulative Margin Futures Gain Gain Account Margin Price (Loss) (Loss) Balance Call Day (US$) (US$) (US$) (US$) (US$) 400.00 4,000 5-Jun 397.00 (600) (600) 3,400 0 . . . . . . . . . . . . . . . . . . 13-Jun
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Ch02 - Mechanics of Futures Markets Chapter 2 Fundamentals...

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