Chpater 10 Flashcards
(14 cards)
What is the initial margin?
Initial margin is a fixed sum payable in respect of each open contract
What is a variation margin?
Variation margin is a daily cash payment made between parties to a futures contract to cover daily changes in the market value of the contract.
When is an option said to be in-the-money?
A option is said to be in-the-money if it has intrinsic value the strike price is below or above the market price of the asset. Depending if its a put or call.
When is an option said to be out-of-the-money?
If the option is above or below the market price of the asset. Depending if its a put or call
When is an option said to be at-the-money?
When the strike price approximately equals the market price of the asset.
What is a speculator?
A speculator is an entity that attempts to make profits by taking a view on the market. If they are right they make money, else they lose money. They are willing to bear risk that others wish to avoid
What is a derivative?
A derivative is a financial instruments that derive their value from the values of underlying securities
What are derivatives used for?
They are used to hedge risk that arise from factors outside their control.
Where are derivatives sold?
On either OTC markets or exchanges
Who are the 2 organisations that make up an organised derivatives market?
The exchange and its clearinghouse (CCP)
What are the 2 types of margins in a derivative contract?
Initial and variation margin
What are the different types of swaps?
Interest-rate swaps
Currency swaps
Equity swaps
What are credit derivatives?
They are instruments that derive their value from the credit quality of an obligation such as a loan or bond of a reference entity
Who are the participants in the derivatives market?
Hedgers
Speculators
Arbitrageurs
