Скачать презентацию FUTURES DEFINITION Futures forward contracts are agreements between Скачать презентацию FUTURES DEFINITION Futures forward contracts are agreements between

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FUTURES DEFINITION Futures (forward) contracts are agreements between two agents where one agrees to FUTURES DEFINITION Futures (forward) contracts are agreements between two agents where one agrees to purchase and the other to sell (deliver) a given amount of a specific commodity at a specific price at a future (prompt) date. Like an order for furniture, house, car, etc. at fixed price.

not optional • Buy (long) -" src="http://present5.com/presentation/2da3647c1bcc885c3a5d7bdc3fbfe930/image-2.jpg" alt="BASIC FEATURES • Both parties are "obliged" -> not optional • Buy (long) -" /> BASIC FEATURES • Both parties are "obliged" -> not optional • Buy (long) - sell (short) • Like options - zero sum - derivative security • No money changes hands initially - Margin put up • Mark to market daily - money moves between margin accounts • Delivery is seldom taken - only 2% (like options) • 70% of traders lose money - some win big (Hillary).

FUTURES VS. FORWARD CONTRACTS FUTURES CONTRACTS ARE STANDARDIZED • • • sold on exchanges FUTURES VS. FORWARD CONTRACTS FUTURES CONTRACTS ARE STANDARDIZED • • • sold on exchanges - Chicago Board of Trade (1848) involve clearing house trading in pit - no specialist - different prices FORWARD CONTRACTS ARE NOT STANDARDIZED • • • sold over the phone (over the counter) no clearing house common for currency trading - banks 24 hour market no mark to market - end day settlement allow contingent delivery - sale of house etc.

Look at Futures Quotes – www. futuresource. com QUESTION: Which commodities are likely to Look at Futures Quotes – www. futuresource. com QUESTION: Which commodities are likely to have futures traded? commodity that can be graded - standardized - widely used - volatile price HOW USED - HELPS BUSINESSES PLAN • • hedging - farmer - short hedge -grain processor long hedge speculating - traders virtual company - trade crude against gas to earn change in refiner profit

EXAMPLE: ASSUME: Calculating returns on futures -speculator - It is January July wheat futures EXAMPLE: ASSUME: Calculating returns on futures -speculator - It is January July wheat futures sell for 4. 84/bushel Each contract covers 3000 bushels Margin rate is 15% Trading commission is $30/roundtrip Buy 5 contracts Figure your investment = 5 x 3000 x 4. 84 x. 15 + (30 x 5) = 11, 040

A. Sell your futures in April when price is 4. 96 / bushel =. A. Sell your futures in April when price is 4. 96 / bushel =. 149/4 months or 44. 8% annual B. Sell your futures in March when price is 4. 75/bushel = -. 136/3 months or -54. 3% annual

Hedging Locks in Profit SIMPLE HEDGING EXAMPLE - CORN Farmer - is a short Hedging Locks in Profit SIMPLE HEDGING EXAMPLE - CORN Farmer - is a short hedger - hedges risk by selling futures. Kelloggs - is a long hedger - hedges risk by buying futures. Timing now later Farmer sell futures cost to grow Net Profit 5 -4 1 Kelloggs buy futures sell cereal -5 6 1

Price Changes Have No Net Impact Suppose corn price is $3 at prompt date. Price Changes Have No Net Impact Suppose corn price is $3 at prompt date. What do the Farmer and Kelloggs do? Farmer Kelloggs Sell corn in Iowa 3 Buy corn in Michigan -3 Buy back futures -3 Sell back futures 3 NET 0 0 What are the respective gains and losses for the Farmer and Kelloggs? Farmer Kelloggs Loss on corn sale -2 Gain on corn buy 2 Gain on futures 2 Loss on futures -2 NET 0 0

Futures Gain (Loss) Offsets Asset Loss (Gain) Suppose corn price is $6 at prompt Futures Gain (Loss) Offsets Asset Loss (Gain) Suppose corn price is $6 at prompt date. What do they do then? Farmer Kelloggs Sell corn in Iowa 6 Buy corn in Michigan -6 Buy back futures -6 Sell back futures 6 NET 0 0 What are the respective gains and losses? Farmer Kelloggs Gain on corn sale 1 Loss on corn buy -1 Loss on futures -1 Gain on futures 1 NET 0 0