Ch02HullFundamentals7thEd - Mechanics of Futures Markets...

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Fundamentals of Futures and Options Markets, 7th Ed, Ch 2, Copyright © John C. Hull 2010 Mechanics of Futures Markets Chapter 2 1
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Fundamentals of Futures and Options Markets, 7th Ed, Ch 2, Copyright © John C. Hull 2010 Futures Contracts Available on a wide range of underlyings Exchange traded Specifications need to be defined: What can be delivered, Where it can be delivered, & When it can be delivered Settled daily 2
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Fundamentals of Futures and Options Markets, 7th Ed, Ch 2, Copyright © John C. Hull 2010 Margins A margin is cash or marketable securities deposited by an investor with his or her broker The balance in the margin account is adjusted to reflect daily settlement Margins minimize the possibility of a loss through a default on a contract 3
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Fundamentals of Futures and Options Markets, 7th Ed, Ch 2, Copyright © John C. Hull 2010 Example of a Futures Trade An investor takes a long position in 2 December gold futures contracts on June 5 contract size is 100 oz. futures price is US$900 margin requirement is US$2,000/contract (US$4,000 in total) maintenance margin is US$1,500/contract (US$3,000 in total) 4
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Fundamentals of Futures and Options Markets, 7th Ed, Ch 2, Copyright © John C. Hull 2010 A Possible Outcome Table 2.1, Page 27 Daily Cumulative Margin Futures Gain Gain Account Margin Price (Loss) (Loss) Balance Call Day (US$) (US$) (US$) (US$) (US$) 900.00 4,000 5-Jun 897.00 (600) (600) 3,400 0 . . . . . . . . . . . . . . . . . . 13-Jun
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This note was uploaded on 02/06/2012 for the course FINANCE 30090 taught by Professor O'neill during the Spring '11 term at University College Dublin.

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Ch02HullFundamentals7thEd - Mechanics of Futures Markets...

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