What are the main differences between futures and forwards in terms of cash flows?
Futures and forwards are derivatives contracts with a lot of similarities, although forwards are OTC contracts while futures are ETD contracts. What are the main differences between both derivatives in terms of their cash flow patterns? a) Daily settlement and short positions. b) Short positions and margin requirements. c) Daily settlement and margin requirements. https://vimeo.com/manage/videos/1003537968
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How do we value forward commitments at maturity?
Suppose investment company Omicron owns 25,000 common non-dividend paying shares of company ABC with a spot price of $154.58. Omicron enters into a forward contract with a financial intermediary to sell forward 25,000 shares at a forward price of $150 per share in 11 months. Calculate the value per share at maturity of the forward
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How can arbitrage opportunities appear when dealing with financial derivatives?
In finance, the market efficiency establishes that market prices should not allow for the possibility of riskless profit or arbitrage in the absence of transaction costs. Which of the following sentences do NOT represent a clear situation of arbitrage with derivatives? a) Two assets with identical future cash flows trade at different prices. b) An
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What are the main operational advantages of derivatives compared to stop markets?
Derivative transactions offer a number of operational advantages to cash or spot markets in many instances. Which of the following sentences better reflects these operational advantages of financial derivatives? a) Lower transaction costs, lower upfront cash requirement, leverage, and short positions. b) Lower risk, higher performance, leverage, and short positions. c) Lower transaction costs, lower
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What are the main differences between futures and forwards?
When dealing with derivatives, we classify them into contingent claims and firm commitments. Futures and forwards are two of most well-known derivatives. Which of the following sentences is correct in relation to the differential characteristics between futures and options? a) Futures are an exchange-traded firm commitment derivative, while forwards are OTC (Over The Counter) contingent
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What is the difference between a firm commitment and a contingent claim?
When dealing with derivatives, we classify them into contingent claims and firm commitments. Which of the following sentences better represent the difference between them? a) Firm commitments can be used to take either a long or a short position. Futures and options are examples of firm commitments. b) In a firm commitment, both counterparties face
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