Ch13_Futures Markets

Ch13_Futures Markets - Chapter13 FinancialFuturesMarkets

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Financial Markets and Institutions Chapter 13 Financial Futures Markets
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Financial Markets and Institutions What is Financial Futures? financial futures contract  is a standardized  agreement to deliver or receive a specified amount  of a specified financial instrument at a specified  price and date Settlement date Initial Price, purchase price, delivery price Transaction cost The buyer of a futures buys the instrument while the  seller delivers the instrument
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Financial Markets and Institutions Types of Financial Futures Interest rate futures  are on debt securities  such as T-bills, T-notes, T-bonds. Stock index futures  are on stock indexes
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Financial Markets and Institutions Purpose of trading financial futures Purpose of trading financial futures Traded either to speculate on prices of securities  or to hedge existing exposure to security price  movements
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Financial Markets and Institutions Interpreting Financial Futures Tables The Wall Street Journal  provides a  comprehensive summary of trading activity  on various financial futures contracts Example of Treasury bill futures quotations: Discount Open High Low Settle Change Settle Change Open Sept 2005 93.80 94.05 93 .80 94.05 +.28 5.95 –.28 2,519
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Financial Markets and Institutions How Financial Futures works?  -- Valuation of Financial Futures The price of a financial futures contract  generally reflects the expected price of the  underlying security as of the settlement date Price of financial asset and price of the futures
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Financial Markets and Institutions How Financial Futures works?  -- Bond Futures Contracts Participants in the Treasury bond futures  market closely monitor the same economic  indicators monitored by participants in the  Treasury bond market.
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Financial Markets and Institutions Speculating with Interest Rate Futures Involves trading T-bill futures The position taken depends on interest rate  expectations If interest rates are expected to decline, purchase T-bill  futures If interest rates are expected to increase, sell T-bill futures
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Financial Markets and Institutions Speculating with Interest Rate Futures 
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This document was uploaded on 08/05/2011.

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Ch13_Futures Markets - Chapter13 FinancialFuturesMarkets

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