Reading #58 - Fwd Mkts and Contracts Flashcards Preview

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Flashcards in Reading #58 - Fwd Mkts and Contracts Deck (16):
1

define "long forward position"

"party to the fwd contract that agrees to BUY the financial/physical asset"

2

define short forward position

"party to the fwd contract that agrees to sell or deliver the asset"

3

which party, short or long, is exposed to default risk?

both long and short

4

define deliverable forward contact

delivering the physical asset in the contract

5

how to terminate position prior to expiration?

enter into an opposite fwd contract with expiration date equal to timing remaining on original contract (same party or diff party)

6

who is the "end user of a fwd contract"

typically corporation,gov't unit, or nonprofit institution

7

who are the dealers

often the banks but can be a nonbank financial institution

8

are dividends included in equity forward contracts?

not usually

9

define Eurodollar deposit

term for deposits in large banks outside US denominated in US dollras

10

Define LIBOR and EURIBOR

Libor is lending rate on dollar denominated loans btwn banks and Euriobor is for euro denominated

11

define FRA

viewed as forward contract to borrow/lend money at certain rate at some future date

12

define long position in FRA

party that borrows the money

13

in FRA, does long pay or receive $ if rate at expiration is above contract rate?

long will receive payment because viewed as right to borrow below market rates

14

in FRA, does long pay or receive $ if rate at expiration is below contract rate?

long pays because viewed as right to lend at higher than market rates

15

how to quote FRA as 60-day FRA on 90-day LIBOR?

2 by 5 FRA (2 month from now, settlement date based on 90 day libor, 60 days = 3+2

16

FORMULA: payment to the long at settlement

(notional principal) [(float-fwd)(days/360)/ 1+(floating)(days/360)]