you work for a conservative asset management firm. Recognizing the economic bene
ID: 2818130 • Letter: Y
Question
you work for a conservative asset management firm. Recognizing the economic benefit of using futures contracts for some of your clients, you request permission from the compliance department to open a futures account. On learning of your request, the firm's chief investment officer requests a meeting with you to explain his disdain for any derivatives, saying, "I might as well write you a check, wish you good luck, and send you off to our local casino. all derivatives markets are nothing more than legallzed games of chance." How would you try to persuade the CIO to let you use futures?Explanation / Answer
Future's contract is standarized forwards contact, to buy or sell a commodity or a financial instrument at a predetermined price at a specific time into the future.
some of the benefits of future's contract are as follows:
the futures contract helps to manage and hedge particular type of risks , it can also be used for speculation, making profits by speculating the price of commodities in the future. currency futures can be used for offsettig the risk of the fluctuations in the value of the currency.
the companies can hedge their exposure in interest rates and exchange rate fluctuations using the future's contract. the peson entering into the future's contract can make a profit by the difference in the price that the person entered into the forward contract and the spot price in the future, if a person purchasing a particular commodity enters into a futures contract to buy at a price whihc is less than the spot price of the commodity in the future the person can make a profit.
a person can trade in futures contract by only making a margin deposit with the trader. The losses are minimized in the futures contrcat as it is marked to market on a daily basis.
Related Questions
Navigate
Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.