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Midterm+II+Review+Guide

Midterm+II+Review+Guide - Midterm II Review Guide I Futures...

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Midterm II Review Guide I. Futures and Options 1) Concept: Very unlikely you will get a conceptual question on futures and options. But you have to understand how they function in order to do well in those numerical questions. Here are some points that you want to be aware of: i) Know the difference among forward, futures and options. (i.e. Forward contract is negotiable, the seller and the buyer can decide the amount of foreign exchange, specific date for delivery and the price. But for futures and options, everything is set. Also futures require a margin rate, and options holder does not have obligation for exercising the contract, etc.) ii) Know the following terms: futures: futures rate, short position, long position, margin rate. Options: call/put, holder/writer (grantor), premium, strike price, in-the- money/at-the-money/out-of-the-money. iii) Understand how the two types of contract works. 2) Numerical question preparation: i) Futures: understand how speculations and hedging work in the futures market.
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