Futures And Forwards

Futures and Forwards ,[object Object]

Cash Flows on Forwards ,[object Object],Spot price of underlying assets Seller’s pay-offs Buyer’s pay-offs Futures Price

Why Forwards? ,[object Object],[object Object],[object Object],[object Object],[object Object]

Futures & Forwards Distinguished More costly Less costly Difficult to terminate Easy to terminate No marking to market Marked to market Not regulated Regulated Identity is relevant Identity of counterparties is irrelevant Are customized Are standardized Trade in OTC markets They trade on exchanges FORWARDS FUTURES

Important Terms ,[object Object],[object Object],[object Object]

Important Terms ,[object Object],[object Object],[object Object],[object Object],[object Object],[object Object]

Important Terms ,[object Object],[object Object],[object Object],[object Object]

Interest Rate Futures ,[object Object],[object Object],[object Object]

Futures & Risk Hedging ,[object Object],[object Object],[object Object],[object Object]

Hedging Interest Rate Risk ,[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object]

Hedging Interest Rate Risk ,[object Object],[object Object],[object Object],[object Object],[object Object],[object Object]

Hedging Interest Rate Risk ,[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object]

Why Not perfect Hedge? ,[object Object],[object Object],[object Object],[object Object]

A Transaction on the Futures Exchange ,[object Object],Buyer Buyer’s Broker Futures Exchange 3 Buyer’s Broker’s Commission Broker Futures Clearing House Buyer’s Broker’s Clearing Firm Buyer’s Broker’s Clearing Firm Seller’s Broker’s Commission Broker Seller’s Broker Seller ,[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],1a 6a 7a 2a 5a 4 8a 8b 9a 9b 2b 5b 1b 6b 7b Note: Either buyer or seller (or both) could be a floor trader, eliminating the broker and commission broker.

Exchange Rate Risk Hedging ,[object Object],[object Object],[object Object],[object Object]

Forward Rate Agreements (FRAs) ,[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object]

Determination of Settlement Amount ,[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object]

Hedging with FRAs ,[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object]

Illustration ,[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object]

Illustration ,[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object]

Index Futures Contract ,[object Object],[object Object]

Illustration (Margin and Settlement) ,[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object]

Illustration ,[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object]

Pricing of Index Futures Contracts ,[object Object],[object Object],[object Object],[object Object],[object Object],[object Object]

Pricing of Index Futures Contracts ,[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object]

Stock Index Arbitrage ,[object Object]

Stock Index Arbitrage: Illustration ,[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object]

Stock Index Arbitrage: Illustration ,[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object]

Stock Index Arbitrage: Illustration ,[object Object],[object Object],[object Object],[object Object],[object Object]

Application of Index Futures ,[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object]

Application of Index Futures ,[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object]

Euro-rate Differentials (Diffs) ,[object Object],[object Object],[object Object],[object Object]

Euro-rate Differentials (Diffs) ,[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object]

Euro-rate Differentials (Diffs) ,[object Object],[object Object],[object Object],[object Object],[object Object]

Foreign Exchange Agreements (FXAs) ,[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object]

Futures And Forwards

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