As the delivery month of a futures contract is approached, the futures price converges to the spot price of the underlying asset. In case the balance on the margin account falls below the maintenance margin, there is a margin call and a deposit must be made to bring the balance back to the initial margin. A futures contract is very similar to a forward contract. The major difference is that futures contracts are traded on an exchange and settled daily, whereas forward contracts are traded over-the-counter and are only settled at maturity.

Q: Which statement is true about the difference between futures and forward contracts?

A: The true statement about the difference between future and forward contracts is:3. Futures contracts…

Q: explain the general variables that one must consider when devising a hedge with futures.…

A: When devising a hedge with futures, there are several variables that must be considered to ensure…

Q: Futures trading halts when daily price limits are reached. O True O False

A: Futures trading:- Futures trading are financial derivatives that bind the parties to trade an item…

Q: (1) (D) Fund A is invested at an effective annual interest rate of 3%. Fund B is invested at an…

A: Compounding interest is there is interest on interest and due to this there interest become larger…

Q: To replicate a short asset position with options a trader would: Short two ATM call contracts and…

A: The correct choice is:B. Short an ATM call and long ATM putExplanation:Explanation of the…

Q: If you are the buyer of a futures contract you are Long Speculating Hedging Short

A: A futures contract is a type of derivative instrument in which an underlying asset is bought or sold…

Q: Which of the following is NOT true O a. Futures contracts nearly always last longer than forward…

A: The following is not true:Answer: Futures contracts nearly always last longer than forward…

Q: Related to a futures contract, what is the maintenance margin?   Question 14 options:…

A: A future contract is a contract agreed by buyer or seller of an asset to process purchase or sell of…

Q: Is there an exchange that widely shares historical settlement prices on Futures contracts? I looked…

A: CME provides settlement date for past one week as well as more than a one week settlement date.

Q: After paying the initial margin, a futures investor does not have to pay any additional money until…

A: Initial margin is the amount of margin which needs to be deposited by the investor before entering…

Q: Can you please help with the question in the picture attached? The answer should be only one and I’m…

A: The correct answers are:B. At the point of buying a futures contract the buyer does not know the…

Q: The basis is defined as the spot price minus the futures price. A trader is hedging the sale of an…

A: We have to find the impact of the unexpected fall in basis on the short position.

Q: In the futures markets, when the initial margin of a futures account is topped up daily to cover…

A: The adverse future price movements leads to a situation in which value of the underlying securities…

Q: Indicate the type of hedge each activity described below would represent. Activity 1. An options…

A: The objective of the question is to identify the type of hedge each activity represents. Hedging is…

Q: The basis is defined as spot minus futures prices.   Evaluate which of the following is most…

A: The basis is described as the disparity between spot and futures prices based on the information…

Q: The swap premium on a credit default swap index will increase after a default. O True O False

A: Credit default swap index The credit default swap index is referred to as the benchmark that was…

Q: The basis is defined as the spot price minus the futures price. A trader is hedging the sale of an…

A: The objective of the question is to understand the impact of a decrease in the basis on a trader who…

Q: If interest rate and stock price move in the same direction, then a futures price implied from…

A: As per the spot-Futures parity, the futures price is equal to the spot price adjusted with the cost…

Exchange Rate Risk

It is the possibility that the value of a currency will fluctuate in the future. In the wake of globalization, business establishments have increasingly ventured into international markets. The volume of international trade has prospered excellently in the near past and is expected to be more affluent in the future. The use of exchange-traded derivative financial instruments has been multi-folded to provide for the requirements of various MNCs and offshore potential investors. Most banks and financial institutions have helped integrate the global economies. Our Government has introduced some bold and extreme measures to fulfil the purpose behind the fiscal, industrial, and monetary policies. The enactment of GST is a huge step towards streamlining the taxation system of the country. Owing to Covid-19, this aspect of corporate risk management has become critical.