The agreement is based on a future transaction in which the commodity will be paid for in future at a time agreeable by both of the parties. This term is common in finance. These contracts are done on mutual consent negotiated at futures exchange acting as an intermediary. The partner who has agreed to purchase the asset in question is referred to as a long whereas the party who sells the given asset is said to short. The price agreed upon by both of the parties is the strike price. This means that the parties have agreed that the price is fair, and they will follow the accord. In this type of transaction, the buyer hopes that the price quoted in the transaction would rise in the future while the seller hopes that the price would decrease in the future. After the deal is sealed the buyers and the sellers would monitor the activities of the futures until the specified date comes. This trading method does not incorporate the usual products for trading. Literature Review A number of articles, journals and books have been written to discuss this for of trading. Usually the commodities that are involved are items that include; treasury bonds, currency, stocks and other intangible financial commodities. Sometimes futures’ trading is based on referenced commodities like interest rates (JORION, 2011, 39). The parties taking part in a futures trade do it to reduce the risk of losses that could be incurred by either of the parties. The parties are required to set up an agreeable amount of money known as the margin to cushion them. In the case the futures price keeps changing every day, the difference between the daily futures price and the first agreed upon price is settled by the margin that had been deposited by the buyer and the seller. This difference also referred to as the variation caters for and covers the daily profits and losses incurred by both the buyer and the seller. Once the margin variation goes beyond the initial deposited margin, a margin alert is made to the owner of the account to restock the account so that both the buyer and the seller have an appropriate daily profit and loss amounts. This exercise is referred to as marking to market (JAMES, 2008, 97). After all this done, the price that is traded upon is the spot value since both the profits and losses incurred by both seller and buyer has been settled. On the day of the specified contract, both of the parties are required to fulfill their part of the bargain and deliver commodity as per the contract (Frazer & Simkins, 2010, 302). In case it was cash that was involved in the trade, the party who incurred the loss is supposed to pay the party that made a profit. In the event one of the parties is not willing to proceed with the transaction, he or she has an option. They can take the opposite position on another futures contract and using the same asset but the date and time remain the same. The difference that comes after that is then a profit or a loss. Taking the side of one of the parties
Futures contracts in risk management companies can use trading on a US exchange Name Professor Course Date Executive Summary Futures contracts require two parties in order to be executed. It requires a buyer and a seller for complete transactions. The main reason for engaging in a futures exchange is to prepare stakeholders for any eventuality and be in a position of making appropriate decisions…
Multinational corporations who have denominations in different currencies are largely exposed to foreign exchange risk and they need to eliminate the impact of severe losses due to adverse movements in foreign exchange rates. Various other forms of managing currency risk have been compared with currency futures to determine that which form is the most credible one.
This report focused on discussing the use of simulation trading through the use of TradeStation trading platform. In relation to the actual simulation trade placed on trade equities/options (i.e. $INDU and DOW), foreign exchange (FOREX) (i.e. USD/JPY and USD/CHF), and futures (i.e.
the price of one currency in terms of another currency. The trading between currencies takes place in the foreign exchange market. Till today, FOREX is the biggest financial market in the whole world. The trading between the different banks like the central banks, the large banks, the multinational corporations, the trading between governments of different countries and other financial markets takes place in the FOREX market only.
According to a study conducted by the Wharton School of University of Pennsylvania, over the past thirteen years, pharmaceutical companies are as much as 50% riskier than the overall Standard & Poor's (S&P) 500. This is primarily attributed to the nature of the industry wherein any events, either positive or negative, are magnified and deemed to have a dramatic effect on shareholder value and brand equity.
Today,bankers are increasingly becoming conscious about recent developments in their respective markets and have resorted into various method of managing risk in bank. Risk management appears to have improved in most sub-regions as a result of the introduction of new approaches in conducting business as well as better measurement and pricing of the various risks
In this paper, a model international company is created that trades with lubricants. Using this model, it is possible to investigate the effects of the different financial instruments availed in the exchange markets. The process of evaluation involves conducting a survey about the finacial instrument then applying it to the model multinational corporation.
The author states that exchange rate appears in the financial section of newspaper each day. The number of US dollar required purchasing one unit of foreign currency, this is call direct quotation. Direct quotation has a dollar sign in their quotation. The number of foreign currency that can be purchase for one dollar are called indirect quotation.
s, limitations of risk management practices as well as recommendations are discussed; and section 3 presents some conclusions based on the analysis in section 2.
The Canadian Helicopter company is the world’s largest commercial helicopter operator. It has more than 60 years
conducts a business outside the country where it is based, the company is said to be exposed to some foreign exchange risks, where the fluctuations in the differences between the home countrys currency and the host countrys currency may result in adverse impacts in the companys
In this essay the researcher not only introduct the reader to futures contracts, it's pricing and risks, but also references to the literature and analyzes types of hedges and risks, that could be present in the trading processes. Risk types are compared and describes and some recommendations are also given.
5 pages (1250 words)Essay
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