The futures market is huge, as many of the world`s largest companies use it to hedge currency and interest rate risks. However, since the details of futures transactions are limited to buyers and sellers – and are not known to the public – the size of this market is difficult to estimate. These contracts are private agreements between two parties, so they are not traded on a stock exchange. Due to the nature of the contract, they are not so rigid in their terms and conditions. Which of the following descriptions describes purchasing power parity (PPP)? These contracts are often used by speculators who bet on the direction in which the price of an asset will move, they are usually closed before maturity and delivery usually never takes place. In this case, a cash settlement usually takes place. Another risk arising from the non-standard nature of futures contracts is that they are only settled on the settlement date and are not placed on the market like futures contracts. What happens if the forward rate specified in the contract deviates significantly from the spot rate at the time of settlement? In this case, the financial institution that created the futures contract is exposed to a higher risk in the event of default or non-settlement by the customer than if the contract was regularly placed on the market. Which of the following methods is not an internal Forex risk management method? Unlike standard futures, a futures contract can be adjusted to a commodity, an amount and a delivery date. The raw materials traded can be grains, precious metals, natural gas, oil or even poultry. Futures can be processed in cash or delivery. Like futures, futures involve agreeing to buy and sell an asset at a specific price at a future time.
However, the futures contract has some differences from the futures contract. Is a “commodity futures contract” one of the following? Futures contracts are not traded on a central exchange and are therefore considered over-the-counter (OTC) instruments. Although their OTC nature facilitates the adjustment of conditions, the absence of a central clearing house also entails a higher risk of default. As a result, futures are not as easily accessible to the retail investor as futures. Which of the following derivatives tend to have small and medium-sized enterprises as counterparties? Consider the following example of a futures contract. Suppose a farmer has two million bushels of corn to sell in six months and is worried about a possible drop in the price of corn. It therefore entered into a futures contract with its financial institution to sell two million bushels of corn at a price of $4.30 per bushel in six months, with settlement on a cash basis. Which of the following characteristics does not distinguish a futures contract from a futures contract? Due to the nature of these contracts, futures are not readily available to retail investors.
The futures market is often difficult to predict. Indeed, agreements and their details are usually kept between the buyer and the seller and are not published. As these are private agreements, the counterparty risk is high. This means that it is possible for one party to default. A futures contract is an agreement between a buyer and a seller to trade an asset at a later date. The price of the asset is determined when the contract is drawn up. Futures contracts have a settlement date – they are all settled at the end of the contract. Futures and futures are similar in many ways: both involve the agreement to buy and sell assets at a future date, and both have prices derived from an underlying asset. However, a futures contract is an over-the-counter (OTC) agreement between two counterparties that negotiate and arrive at the exact terms of the contract – such as. B.dem expiry date, the number of units of the underlying asset represented in the contract and what exactly is the underlying asset to be delivered, among other factors.
Futures contracts are settled only once at the end of the contract. Futures, on the other hand, are standardized contracts with fixed maturities and uniform underlying. These are traded on the stock exchange and settled daily. Which of the following exactly describes a currency board? The large-scale, unregulated nature of the futures market means that, at worst, it can be vulnerable to a cascading series of defaults. While banks and financial firms mitigate this risk by being very careful in choosing their counterparty, there is a possibility of massive default. Since they are traded on an exchange, they have clearing houses that guarantee transactions. .