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11 Cards in this Set
- Front
- Back
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Futures price |
agreed upon price for contract made at time t |
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spot price |
current price of underlying asset at time t |
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interest rate |
risk free rate for borrowing and lending |
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cash yield/storage cost |
rate at which the value of your asset increase or decreases as you hold it in inventory |
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The price specified in a futures agreement to trade in an instant from now will be identical to the current... |
spot price |
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The basis will eventually approach... |
zero |
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Basis Risk |
the variability in the basis over time |
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True/False over time the basis will change |
true
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What are the cash and carry steps? |
-At time 0, short the asset for delivery time T -Purchase asset in spot market at time 0 -Borrow money to make the above purchase and repay at time T -Store the asset until time T and deliver to satisfy Futures contract |
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What are the steps to a reverse Cash and Carry |
-At time 0, long futures for the asset for delivery at time T -Short sell the asset in the spot market at time 0 -invest proceeds of the short sale at the risk-free rate -Take delivery of underlying asset and use it to repay the short sale |
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What are some assumptions in our formula for cash and carry/reverse cash and carry? |
-no interim cash flows-i.e margin calls -Borrowing and lending rate are the same -No transactions costs -Underlying asset is deliverable |
