Types Of Derivatives And Derivative Market â€Myassignmenthelp.Com

Question: Discuss About The Types Of Derivatives And Derivative Market? Answer: Introducation Withdrawable margin account amount is an amount that exceeds the initial margin. In this case, an increase in $1 in the future price will lead to a gain of $1000. Therefore, for an increase of $2, the gain will be $2,000 which can be withdrawn. The current future price is $60 implying that the future price will be (60+2) = $62. Thus, the correct answer is B and [1] Where, U is the present value of the total storage costs, T is the time,the spot price, r is the risk-free rate with continuous compounding and the future price today. Approximately, the correct answer is C Forward rate= Long Term LIBOR=4% Long term period=1 year Short term LIBOR=3.75% Short term period=9 months= Contract period=3months= Substituting the values in the above equation, Forward rate= The correct answer is C A Future contract refers to a standardized contract mainly traded in exchange. Futures dont carry any credit risk as the clearinghouse serves as the third party(counter-party) to the two parties involved in the contract. Moreover, the credit exposure in the futures contract is reduced by marked-to-market daily criteria. On the other hand, a forward contract is an agreement between two parties where settlement takes place over-the-counter. They are settled at the time of delivery, and as a result, high credit risk is realized. The credit exposure ever-increases since the gain or loss is only felt during the settlement time. Concerning the trade volume, a forward contract market is tailored based on the traders requirements. Over-the-counter trade via a counter-party network that is flexible to larger sizes as opposed to exchanging traded stocks which exhibit centralized exchange.[2] Therefore, over the counter market and forward contract have the greater volume and higher risk respectively. The correct answer is B An upward sloping zero curve has a lower one year pay yield than the one year zero rate. Moreover, the forward rate matching the period between 1 and 1.50 is higher than its corresponding one-year zero rate. Therefore, the correct answer is A With continuous compounding, the rates are as shown For a zero rate of 4% and maturity time of 6 months, R= For a zero rate of 4.5% and T=6 months, R= For a zero rate of 4% and maturity time of 6 months, R= For a zero rate of 4% and maturity time of 6 months, R= The zero-rate corresponding to 2-year period is 5%=0.05 is the current index value, r is the risk-free rate with continuous compounding, q is the historical dividend yield, T the time, and the future contract price. An arbitrage profit occurs when . Therefore, there will be an arbitrage profit of because the future price is too high relative to the current index. Therefore, the company should take short contracts. In terms of the futures contract, it has to take a long position in References Srishti. "Types of Derivatives and Derivative Market." IPleaders. Last modified February 1, 2012. https://blog.ipleaders.in/types-of-derivatives-and-derivative-market/. "Financial Derivatives." InAn Introduction to the Mathematics of Financial Derivatives, 2013ed. [s.l.]: Academic Press Inc, 2013. [1]. "Financial Derivatives," inAn Introduction to the Mathematics of Financial Derivatives([s.l.]: Academic Press Inc, 2013),xx. [2]. Srishti , "Types of Derivatives and Derivative Market," IPleaders, last modified February 1, 2012, https://blog.ipleaders.in/types-of-derivatives-and-derivative-market/.