h) discuss the relationship between the prices of puts, calls, and forward/futures contracts on the same underlying asset using the put-call-forward/futures parity.       i) discuss the boundary conditions on the prices of American and European call option contracts on futures.       j) explain and discuss the use of interest rate parity in pricing foreign currency forwards and futures.       k) describe how spot prices are determined using the cost-of-carry model.

Q: Advantages of currency futures contracts relative to forward contracts include _     a. Higher…

A: A futures contract is a legal contract to purchase or sell an underlying asset or security at a…

Q: Discuss the factors giving rise to an inverted futures market for a storable versus a non-storable…

A: The inverted futures market for storable goods exists when the short-term deal costs are more…

Q: What is the difference between forward and futures contracts, focusing on the pros and cons of each

A: In certain ways future and forward deals are similar: both include the buying and selling of assets…

Q: describe the major differences between futures and forwards.   b)describe delivery and settlement…

A: A derivative is a financial contract whose value is derived from the underlying asset, which could…

Q: e value of a European put option can be either directly or inversely to a. Time to expiry b.…

A: Put option give the opportunity to sell stock on expiration but there is no obligation to do that.

Q: define and explain convenience yield, and describe how it is incorporated into the futures pricing…

A: “Hi There, thanks for posting the question. But as per Q&A guidelines, we must answer the first…

Q: describe the major differences between forward contracts and option contracts.       b)discuss…

A: An option is a type of financial instrument that is based on the value of underlying securities,…

Q: age of over-the-counter products such as swaps or forwards contracts, relative to exchange-traded…

A: Exchanged traded products are traded on stock exchanges where as over the counter products are…

Q: The premium on a put option is primarily a function of the difference in spot price S relative to…

A: I explained all things in solution Explanation:Step 1:All else being equal1) A lower spot price…

Q: How is credit risk managed in case of foreign exchange futures contracts? Discuss with the use of an…

A: Credit risk management in foreign exchange (forex) futures contracts is a crucial aspect of…

Q: Explain the main differences between futures contracts and forward contracts.

A: Solution- Future Contract-        A derivative may be a legal agreement to shop for or sell a…

Q: Define the terms, or give short explanations.         -futures contract/option -hedge -hedger…

A: A derivative is a financial contract whose value is derived from the underlying asset, which could…

Q: describe the role of forward markets and futures markets in price discovery.   b)discuss three…

A: A derivative is a financial contract whose value is derived from the underlying asset, which could…

Q: Explain what is meant by forward contracts and futures using examples. List the main advantages /…

A: An option offers the holder of it the right, and not the responsibility, to buy or to sell an asset…

Q: define the following, and discuss the difference between them at origination, before expiration, and…

A: “Hi There, thanks for posting the question. But as per Q&A guidelines, we must answer the first…

Q: Which of the following people represents several insurance companies but owns the policy…

A: “Since you have asked multiple questions, we will solve the first question for you. If you want any…

Q: Which of the following refers to exposure netting?  1. It is a strategy based on adjustments of the…

A: exposure netting is defined as a method of hedging transaction risk by offsetting exposure in one…

Q: How do I backdate settlement prices on the Chicago Mercantile Exchange? Or is there another exchange…

A: Backdate settlement is not allowed C mercantile exchange as it is illegal and no other exchange…

Q: What is a swap? Describe the mechanics of a fixed-rate swap and a floating-rateswap.

A: SwapsAn agreement amongst 2 counterparties i.e parties, a financial institution for the exchange of…

Q: Discuss the difference between forward and futures contracts, focusing on the pros and cons of each.

A: Hedge:   An investment strategy that is formed to reduce the risk of the adverse price movement of…

Q: Explain why futures contracts may mitigate the credit risk involved in forward contracts.

A: Forward and future contracts are two types of risk management and hedging strategies.

Q: Demonstrate how interest rate and currency swaps are constructed and discuss the comparative…

A: Two parties can exchange cash flows based on various interest rates or currencies using financial…

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…

Q: What is the main purpose of a hedging strategy using a forward contract or a futures contract?…

A: Hedging-It is a risk management strategy undertaken by individuals, investors, corporates to offset…

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.