【文章內(nèi)容簡介】 d an expit transaction). This is the one exception to the Federal law that requires that all trades take place on the floor of the exchange. You must then contact the clearinghouse and tell them what happened. h: Describe the four different types of futures contracts. Agricultural and metallurgical contracts. Physical goods contracts cover a wide range of products: agricultural goods, oil and meal, livestock, forest products, textiles, foodstuffs, and minerals. Many of these products are represented by a variety of contracts. The number and types of contracts represent harvest periods and the level of trading in the product. Interest earning assets. Interest rate futures started trading in 1975 and have experienced tremendous growth since then. Existing contracts now span almost the entire yield curve, so it is possible to trade instruments with just about any maturities. Foreign currencies. Currency trading started in the early ?70s. The foreign exchange futures market represents the one case of a futures market existing in the face of a truly active forward market. The forward market for foreign exchange is many times larger than the futures market. Indexes. Index trading started in 1982 and has bee quite successful. Most index futures are for stock indexes. You should know that stock index contracts do not allow for actual delivery. A trader?s obligation must be fulfilled by a reversing trade or a cash settlement at the end of trading. i: Explain the purposes of futures markets. Price discovery is the revelation of information about future cash market prices through the futures market. There is a relationship between an asset?s current (spot) price, its futures contract price, and the price that people expect to prevail on the delivery date. By using the information contained in futures prices today, market observers can form estimates of what the price of a given modity will be at a certain time in the future. Hedging: To manage risk, many futures market participants trade futures as a substitute for a cash transaction. For example, farmers who have wheat in the field can lock in current market prices by selling their crop in the futures market. This is called an anticipatory hedge. An anticipatory hedge is a futures market transaction used as a substitute for an anticipated future cash market transaction. Hedgers tend to be business concerns dealing with specific modities and use the futures markets as substitutes for the cash market. Speculators tend to be individual traders willing to take on risk in the pursuit of profits. In effect, hedgers are transferring their risk to the speculators for a fee. Hedging is the prime social rationale for futures trading. : The Options Market a: Distinguish between the rights and obligations of put and call buyers and writers. If the option is purchased for $10, the buyer can purchase the stock from the option seller over the next 5 months for $50. The seller or writer of the option gets to keep the $10 premium no matter what the stock does during this time period. If the option buyer exercises the option, the seller will receive the $50 strike price and must deliver to the buyer a share of ABC stock. If the price of ABC stock falls to $50 or below, the buyer is not obliged to exercise the option. Note that the option holders will only exercise their right to act if it is profitable to do so. The option writer, however, has an obligation to act at the request of the option holder. A put option is the same as a call option except the buyer of the put has the right to sell the put writer a share of ABC at any time during the next five months in return for $50. The owner of the option is the one who decides whether to exercise the option or not. If the option has value, the buyer can either exercise the option or sell the option to another buyer in the secondary options market. b: Define in the money, out of the money, and at the money for both puts and calls, and calculate the amount for which an option is in or out of the money. 1. When the stock?s price (S) is above the strike price (X), a call option has value and is said to be inthemoney. 2. When the stock?s price (S) is equal to the strike price (X), a call option has no value and is said to be atthemoney. 3. When the stock?s price (S) is less than the strike price (X), a call option has no value and is said to be outofthemoney. 4. When the stock?s price (S) is above the strike price (X), a put option has no value and is said to be outofthemoney. 5. When the stock?s price (S) is equal to the strike price (X), a put option has no value and is said to be atthemoney. 6. When the stock?s price (S) is less than the strike price (X), a put option has value and is said to be inthemoney. c: Distinguish between a European and an American call or put option. American options allow the owner to exercise the option at any time before or at expiration. European options can only be exercised at expiration. The name of the option does not imply where the options trade, they are just names. The options are different because the American option allows for early exercise. At expiration, the options are identical so they can be exercised or allowed to expire. Before expiration, they are different and may have different values, so you must distinguish between the two. d: Explain why an American option must be worth at least as much as a European option. If two options are identical (maturity, underlying stock, strike price, etc.) in all ways, except one is a European option and the other is an American option, the value of the American option will equal or exceed the value of the European option. Why? The American option has more flexibility than the European option, so it should be worth more. If you choose not to exercise the Am