mechanicsoffuturesmarkets.ppt

Derivatives Markets Exchange traded Traditionally exchanges have used the open-outcry system, but increasingly they are switching to electronic trading Contracts are standard there is virtually no credit risk (交易所居於其間) Over-the-counter (OTC) A computer- telephone-linked network of dealers at financial institutions, corporations, fund managers Contracts can be non-standard there is some small amount of credit risk Ways Derivatives are Used To hedge risks To speculate (take a view on the future direction of the market) To lock in an arbitrage profit To change the nature of a liability To change the nature of an investment without incurring the costs of selling one portfolio buying another Forward (遠期) Contracts A forward contract is an agreement to buy or sell an asset at a certain time in the future for a certain price (the delivery price) It can be contrasted with a spot contract which is an agreement to buy or sell immediately It is traded in the OTC market Foreign Exchange Quotes on Aug 16, 2001 Forward Price The forward price for a contract is the delivery price that would be applicable to the contract if were negotiated today (i.e., it is the delivery price) The forward price may be different for contracts of different maturities Terminology The party that has agreed to buy has what is termed a long position The party that has agreed to sell has what is termed a short position Example On Aug. 16, 2001 the treasurer of a corporation enters into a long forward contract to buy ￡1 mil. in 6 months at an exchange rate of 1.4359 This obligates the corporation to pay $1,435,900 for ￡1 mil. on Feb. 16, 2002 What are the possible outcomes? Profit from aLong Forward Position Profit from a Short Forward Position Futures (期貨) Contracts Agreement to buy or sell an asset for a certain price at a certain time Similar to forward contract Whereas a forward contract is traded OTC, a futures contract is traded on an exchange Examples of Futures Contracts Agreement to: 1