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9 Cards in this Set
- Front
- Back
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forward contract
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an agreement between two parties involving the future delivery of a particular quantity of an asset at a price agreed upon today
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forward contract characteristics
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customized contract, OTC, settled at maturity
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futures contract
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entered into on an organized exchange and has standardized features (contract size, delivery date, acceptable grade of the commodity)
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Futures contract characteristics
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standardized contract, exchange market, marked to market
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clearing house
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the counterparty to all buyers and sellers, obligated to deliver or supply delivery.
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long hedge
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protecting against a rise in price
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short hedge
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protecting against a fall in price
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determinants of futures prices
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interest rate- if the interest rate is higher the futures price should increase
cost of carry - if the cost of carry is higher the futures price should increase income - if the asset pays a higher income the futures price should decrease |
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ways to forecast future cashflows
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Economy- GDP, unemployment, interest rates, tax rate changes
Industry- competition, growth, bargaining power Company- financial statements |
