Forward and futures contracts The derivatives markets contain different types of contracts. Forward contracts, futures contracts, options, and swaps are some common types of derivatives contracts.
are customized agreements in which one party agrees to buy a commodity at a specific price on a specific future date, and the other party agrees to make the sale. Typically, goods are actually delivered under these contracts.
Which of the following are used to hedge against fluctuating interest rates, stock prices, and exchange rates?
A) Financial futures
B) Commodity futures
InputOutzone Inc. is planning to build a new production facility that will cost $10 million. It plans to finance this project with 10-year bonds that would carry a 7% interest rate if they were issued today. However, the company does not need the money for six months. Which of the following actions would hedge Inputoutzone Inc. against an increase in interest rates? A) Take a short position in foreign exchange futures
B) Take a short position in interest rate futures
C) Take a long position in foreign exchange futures
D) Take a long position in interest rate futures
Forward and futures currency contracts reflect an obligation to either buy or sell currency at a future date, whereas options are contracts traded between buyers and sellers that give the option holder the right, but not the obligation, to buy or sell a specific (underlying) asset at a specific price, called the exercise or strike price, on or before an expiration date. allows you to exercise the option anytime on or before the expiration date.
allows you to exercise the option anytime on or before the expiration date.