Foundations of Financial Management
16th Edition
ISBN: 9781259277160
Author: Stanley B. Block, Geoffrey A. Hirt, Bartley Danielsen
Publisher: McGraw-Hill Education
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Chapter 19, Problem 12DQ
Summary Introduction
To explain: The two areas in which the usage of futures contract is most common and also explain the percentage of the underlying security’s value as a down payment in a futures contract.
Introduction:
Futures contract:
It is a legal agreement for buying or selling goods or securities at a defined price for a set period of time in the years ahead.
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Students have asked these similar questions
“Hedging is the basic function of futures market”. Discuss the statement in the light of uses of futures contract.
What are the key differences between future and forward contracts?
a) direct contract for forwards
b) clearing house for futures
c) futures have less risk
d) futures have a standard amount
34) What is an interest-rate futures contract? How does it differ from an interest-rate forward contract?
35) Explain using an example the statement that "at the expiration date of a futures contract, the price of the contract is the same as the price of the underlying asset to be delivered."
36) Where are financial futures traded? Describe that market.
Chapter 19 Solutions
Foundations of Financial Management
Ch. 19 - Prob. 1DQCh. 19 - Prob. 2DQCh. 19 - Why is it said that convertible securities have a...Ch. 19 - Prob. 4DQCh. 19 - Prob. 5DQCh. 19 - Prob. 6DQCh. 19 - Explain the difference between basic earnings per...Ch. 19 - Prob. 8DQCh. 19 - Prob. 9DQCh. 19 - Prob. 10DQ
Ch. 19 - Prob. 11DQCh. 19 - Prob. 12DQCh. 19 - Prob. 13DQCh. 19 - Prob. 1PCh. 19 - Prob. 2PCh. 19 - Prob. 3PCh. 19 - Prob. 4PCh. 19 - Prob. 5PCh. 19 - Prob. 6PCh. 19 - Prob. 7PCh. 19 - Prob. 8PCh. 19 - Prob. 9PCh. 19 - Prob. 10PCh. 19 - Prob. 11PCh. 19 - Prob. 12PCh. 19 - Prob. 13PCh. 19 - Prob. 14PCh. 19 - Prob. 15PCh. 19 - Prob. 16PCh. 19 - Prob. 17PCh. 19 - Prob. 18PCh. 19 - Prob. 19PCh. 19 - Prob. 20PCh. 19 - Prob. 21PCh. 19 - Prob. 22PCh. 19 - Prob. 23PCh. 19 - What area the first five products offered?
Ch. 19 - Prob. 4WE
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- Why might an individual purchase futures contracts, rather than the underlying assets?Please provide a long and detailed answer! <3arrow_forwardConsider a security that pays income to its holders (e.g., a dividend-paying stock, or acoupon bond). Should the forward price of this security (for a contract that matures attime T), F0,T, be higher than, lower than, or equal to the security's current spot price?Why?.arrow_forward4arrow_forward
- Financial Futures Markets: Explain how sellers of financial futures contracts can offset their position. How is their gain or loss determined? Note: there are 2 parts to this question.arrow_forwardWhich of the following is a reason why the default risk of a futures contract is assumed to be less than that of a forward contract? a. Forward contracts can be tailored, while future contracts are non-standardized. b. Forward contracts are classified as exotic derivatives. c. Futures contracts are exchange-traded contracts, daily settlements are implemented by the clearing house. d. More flexibility as the buyer can decide whether or not to exercise the contract at maturity. e. For futures contracts, all cash flows are required to be paid at one time on contract maturity.arrow_forwardAll of the statements below are true of futures contractsexcept that futures contracts: O a. result in predictable gross profits. O b. result in predictable cash flows. O c. eliminate downside risk and upside potential. O d. eliminate downside risk while allowing for upside potential.arrow_forward
- (a) Outline in detail what is meant by a forward and futures contract. Evaluate the relationship between futures price and spot price, and give reasons to justify the necessity for exchange margin accounts. (b) Explain the concept of cost of carry model and its role in the pricing of financial futures contracts.arrow_forwardExplain the difference between a call option and a long position in a futures contract.arrow_forward4arrow_forward
- which one is correct please confirm? Q19: Using Futures contract to transfer price risk is called diversifying. hedging speculation arbitragearrow_forwardExplain what is meant by “initial margin” on a futures contractarrow_forwardWhat is a futures contract, and how are futuresused to manage risk? What are you protectingagainst if you buy Treasury futures contracts? Whatif you sell Treasury futures short?arrow_forward
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