The Purposes and Benefits of Derivatives aRisk allocation transfer and

The purposes and benefits of derivatives arisk

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5 The Purposes and Benefits of Derivatives a.Risk allocation, transfer, and managementb.Information discoveryc.Operational advantagesd.Market efficiency
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Risk allocation, transfer, and management
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Information discovery
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Operational advantages Derivatives have lower transaction costs than the underlying Derivative markets also typically have greater liquidity Derivative markets increase the ease with which one can go short
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Market efficiency Derivatives increase the market efficiency
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6 Criticisms and Misuses of Derivatives 1. Speculation and Gambling 2. Destabilization and Systematic Risk
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7 Elementary Principles of Derivative Pricing 1.Storage2.Convenience Yield3.Arbitrage Law of one price An asset should be traded at same price even in different markets What is the Definition of Arbitrage?How does Arbitrage Contribute to Market Efficiency?
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Practice Questions
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Practice Questions
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Practice Questions
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