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13 Cards in this Set
- Front
- Back
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Def. of Derivative Instrument?
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one whose principal source of value depends on the value of something else, such as an underlying asset, reference rate, or index.
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What kind of position does a buyer of a derivative have?
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A Long Position
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What kind of position does a seller of a derivative have?
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A Short Position
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What is an underlying?
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An asset, reference rate, or index which a derivative derives its principal source of value.
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What is a forward contract?
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An agreement for the *delivery* of a physical asset at a certain time in the future for a certain price.
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What are the differences between futures and forward contracts? (6 main differences)
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1. Futures are traded on an organized futures exchange, such as CBOT. Forwards are private agreements.
2. Futures are standardized, while Forwards can be for any amount, price, time, etc. 3. Futures go through a clearinghouse. Forwards do not. 4. Futures rely on margins and daily settlements to protect the integrity of them. 5. Futures can be closed prior to contract expiration. 6. Futures are regulated by the CFTC, Forwards are not. |
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What is another name for an option seller?
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Option Writer
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Def. of a Swap?
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An agreement between two or more parties to exchange sequences of cash flows over a period in the future.
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What are the 5 basic types of Swaps?
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1. Interest Rate Swaps
2. Currency Swaps 3. Equity Swaps 4. Commodity Swaps 5. Credit Swaps |
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Give two "classifications" of Swaps
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Plain Vanilla
OR Flavored |
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What is another name for a Swap Customer?
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End Users
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What is a Complete Market?
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A market in which any and all identifiable payoffs can be obtained by trading the securities in the market. (i.e. can trade for any desired risk and return imaginable)
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What is academic arbitrage?
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Generating a riskless profit without investment.
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