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lecture 24 - Lectures 24 Futures Prof Irvine FINA 4310 What...

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Prof Irvine FINA 4310 Lectures 24 Futures
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Prof Irvine FINA 4310 What is a future? l An future is a standardized agreement to exchange a commodity in the future for a price that is decided today (the futures price)
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Prof Irvine FINA 4310 Futures Terminology l Agree to take delivery – Long £ Pay futures price l Agree to deliver - Short £ Receive futures price l Key Elements £ Futures vs. Spot £ Contract Multiple £ Expiration £ Cash Settle
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Prof Irvine FINA 4310 Wall Street Journal Futures Price Quotes Open Open High Low Settle Change High Low Interest July 179 180 178¼ 178½ -1½ 312 177 2,837 Sept 186 186½ 184 186 280 184 104,900 Dec 196 197 194 196½ 291¼ 194 175,187 Sept 117-05 117-21 116-27 117-05 +5 131-06 111-15 647,560 Dec 116-19 117-05 116-12 116-21 +5 128-28 111-06 13,857 Sept 11200 11285 11145 11241 -17 11324 7875 18,530 Dec 11287 11385 11255 11349 -17 11430 7987 1,599 Corn (CBT) 5,000 bu.; cents per bu. TREASURY BONDS (CBT) - $1000,000; pts. 32nds of 100% DJ INDUSTRIAL AVERAGE (CBOT) - $10 times average Lifetime
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Prof Irvine FINA 4310 Trading Mechanics l Clearinghouse - acts as a party to all buyers and sellers. £ Obligated to deliver or supply delivery l Closing out positions £ Reversing the trade £ Take or make delivery £ Most trades are reversed and do not involve actual delivery
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Prof Irvine FINA 4310 Trading With and Without a Clearinghouse
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Prof Irvine FINA 4310 Margin and Trading Arrangements Initial Margin - funds deposited to provide capital to absorb losses £ Marking to Market - each day the profits or losses from the new futures price and reflected in the account. £ Maintenance or variance margin - an established value below which a trader’s margin may not fall.
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