MGTC71-1 - MGTC71- Lecture 1 Introduction Futures Markets...

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1 MGTC71- Lecture 1 Introduction Futures Markets Ata Mazaheri
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2 Lecture Outline Derivatives: the Definition Types of Derivatives -Forwards, Futures, Swaps, Options - Definition - Terminology - Examples
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3 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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4 Examples of Derivatives Futures Contracts Forward Contracts Swaps Options
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5 Derivatives Markets Exchange traded Traditionally exchanges have used the open- outcry system, but increasingly they are switching to electronic trading Contracts are standard there is virtually no credit risk Over-the-counter (OTC) A computer- and telephone-linked network of dealers at financial institutions, corporations, and fund managers Contracts can be non-standard and there is some small amount of credit risk
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6 Size of OTC and Exchange Markets Source: Bank for International Settlements. Chart shows total principal amounts for OTC market and value of underlying assets for exchange market 6
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7 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
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8 Forward Contracts Forward contracts are similar to futures except that they trade in the over-the-counter market Forward contracts are particularly popular on currencies and interest rates
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Fundamentals of Futures and Options Markets, 7th Ed, Ch 1, Copyright © John C. Hull 2010 Foreign Exchange Quotes for USD/GBP exchange rate on July 17, 2009 Bid Offer Spot
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This note was uploaded on 07/20/2011 for the course MGMT 71 taught by Professor Mazaheri during the Spring '11 term at University of Toronto.

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MGTC71-1 - MGTC71- Lecture 1 Introduction Futures Markets...

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