CH18+questions - Chapter 18 Futures contracts and forward...

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Chapter 18 Futures contracts and forward rate agreements 1. Discuss the nature and purpose of derivative products. In your answer consider the different types of derivative products, the risks managed by these products and the differences between exchange-traded contracts and over-the-counter contracts. 2. Define a futures contract. Describe the basic principles behind the use of futures contracts to manage risk exposures. 3. For investors and borrowers considering setting up a risk management strategy using futures contracts, there is a basic rule that determines the timing of the various buy/sell transactions. Specify and explain this rule, giving examples from an investor’s and a borrower’s viewpoint. 4. Outline the procedure involved in buying a futures contract. Indicate the implications of being long in a futures contract. What are the procedures for closing out a long position prior to delivery? 5. On the Sydney Futures Exchange the price of a three-year Commonwealth Treasury bond futures contract is quoted at 94.25. Explain what this quote means and why it is given in this manner. 6. A funds manager that has sold a ten-year Commonwealth Treasury bond futures contract has not closed out its position by delivery date. What procedure must be followed to settle the open position? 7. Distinguish between hedgers and speculators. Show how a hedger could use the ninety-day bank-accepted bill futures contracts to hedge interest-rate uncertainty. Show how a speculator may use the same futures contract in an attempt to make a profit. 8. While futures contracts may be used to hedge the risk of fluctuations in the prices of the
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This note was uploaded on 03/26/2012 for the course FINS 2624 taught by Professor Hneryyip during the Three '10 term at University of New South Wales.

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CH18+questions - Chapter 18 Futures contracts and forward...

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