AnIntroductiontoDerivativemarketsandSecurities_student汇.pptVIP

Derivative Securities Markets Overview of Derivative Markets Forward Contract A forward contract gives its holder both right and full obligation to conduct a transaction involving the underlying asset at a predetermined future date and at a predetermined price. There must always be two parties (counterparties) to a forward transaction: the eventual buyer (or long position) and the eventual seller (or short position). Overview of Derivative Markets Forward Contract Forward contract are negotiated in the OTC market Forward contracts are agreements between two private parties. One of which is often a derivatives intermediary, such as a commercial or an investment bank. The terms of the contract are completely flexible. The arrangements may not require collateral (high credit risk). It is often illiquid. Financial Futures A financial futures contract is a standardized agreement to deliver or receive a specified amount of a specified financial instrument at a specified price and date Both counterparties need to post collateral, or margin, to protect itself against the possibility of default. Futures are traded on organized exchanges The exchanges clear, settle, and guarantee all transactions that occur on the exchange Futures are regulated by the Commodity Futures Trading Commissions (CFTC) Approves futures contracts and imposes regulations Background on Financial Futures Interest rate futures are on debt securities such as T-bills, T-notes, T-bonds, and Eurodollar CDs Stock index futures are on stock indexes Settlement dates are in March, June, September, and December Most financial futures are traded on the Chicago Board of Trade or the Chicago Mercantile Exchange Background on Financial Futures Purpose of trading financial futures Traded either to speculate on prices of securities or to hedge existing exposure to security price movements Speculators take positions to profit from expected changes in the price of futures contracts over time Day traders a