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13 Cards in this Set
- Front
- Back
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Hedging
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Reducing a firm's exposure to price or rate fluctuations. Also "immunization."
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Derivative security
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A financial asset that represents a claim to another financial asset.
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Risk profile
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A plot showing how the value of the firm is affected by changes in prices or rates.
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Transactions exposure
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Short-run financial risk arising from the need to buy or sell at uncertain prices or rates in the near future.
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Economic exposure
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Long-term financial risk arising from permanent changes in pries or other economic fundamentals.
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Forward contract
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A legally binding agreement between two parties calling for the sale of an asset or product in the future at a price agreed on today.
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Payoff profile
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A plot showing the gains and losses that will occur on a contract as the result of unexpected price changes.
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Futures contract
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A forward contract with the feature that gains and losses are realized each day rather than only on the settlement date.
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Cross-hedging
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Hedging an asset with contracts written on a closely related, but not identical, asset.
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Swap contract
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An agreement by two parties to exchange, or swap, specified cash flows at specified intervals in the future.
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Option contract
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An agreement that gives the owner the right, but not the obligation, to buy or sell a specific asset at a specific price for a set period of time.
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Call option
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An option that gives the owner the right, but not the obligation, to buy an asset.
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Put option
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An option that vies the owner the right, but not the obligation, to sell an asset.
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