Ch 7 : Futures and Options on Foreign Exchange

what is a derivative

asset depends on another asset

what is speculation

Using derivatives to bet on price changes and try to make a profit

wha tis hedging

Using financial tools to protect against price changes and lower risk

what is derivatives

security that dervies it’s value from an underlying asset 

what is the difference between forward and futures contracts

• Forward contracts are custom-made deals between a client and their bank.

• Futures contracts are standard deals traded on exchanges, with prices updated every day through a central system.

what does CME stand for 

Chicago 

Merantile 

Exchange 

what is ISDA

international swap dealer assoication

difference between futures and forward contract slide 5-6

what is opening price

high and low quotes for the trading day,

settlement price, and open interest.

what is open interest

is the total number of short or long

contracts outstanding for the particular delivery month.

call option
buy or sell

buy

put option

buy or sell

sell

what are options

provide the holder the right but not the obligation to buy/sell underlying attet at a spefic price by/on a specified date

price paid is _________for underlying asset

exercise/strick

what is a premium

cost of the option contract

what is an american type option

holder can excute anytime to maturiy

what is european style option 

holder excute at maturity 

what is a long call

holder may exercise the right to purchase undelrying asset in the future

do you pay a premium to short call

true or false

true 

what is a short call

obligated to sell underlying asset to long in the future

exercise price is ______

contract price and agreed sales price

what is a put option

provides holder w/ the right by no the obligation to sell underlying asset at a specified price by a specified date 

what is a long put

right to sell

what is a short put

oblifation to buy (writer)

what is the put call parity

shows how prices of puts calls and underlying asset much remain consistant

what are the assumptions of the put cal parity

1. european 

2. identical underlying assets

3. identical maturities 

4. identical exercise/strike

5. Formula?

in - class examples