TAILIEUCHUNG - Lecture Financial markets - Lecture 19: Forwards and futures

In this chapter, the following content will be discussed: Forward contracts and their limitations, futures contracts since Osaka in 1600s, fair value, hedging function, failure to hedge. Inviting you refer. | Lecture 19: Forwards & Futures First Futures Market: Osaka Begun at Dojima, Osaka, Japan, in 1670s. World’s only futures market until 1860s. Dojima was center for rice trade, with 91 rice warehouses in 1673. Dojima futures exchange had precise definitions of quality, delivery date and place, experts who evaluated rice quality, and clearinghouses for contracts. Trading floor, daily resettlement, burning fuse, and watermen Function of Osaka Futures Market Japan had sophisticated financial contracts before the futures market, partly under influence of Dutch. Rice bills and silver bills were kinds of forward contracts. Osaka market provided liquidity and price discovery for rice, allows merchants to hedge. Issues for Rice Warehouser Warehousing itself is a stable business, little risk Great risk in fluctuation in rice price Warehouser may seek to sell the rice forward and lock in initial price. But, a forward contract is illiquid, difficult Forward Contract Forward is just a contract to deliver at a future date (exercise date or maturity date) at a specified exercise price. Example: Rice farmer sells rice to warehouser. Example: Foreign Exchange (FX) forward. Contract to sell £ for ¥. Both sides are locked into the contract, no liquidity. What will warehouse think if rice farmer tries to get out of the contract? Problem with Forwards: Default Farmer and warehouser must check each others’ creditworthiness Forward contracts are inherently credit instruments. Only people with good credit can use them. FX Forwards and Forward Interest Parity FX Forward is like a pair of zero coupon bonds. Therefore, forward rate reflects interest rates in the two currencies Forward Interest Parity: Forward Rate Agreements Promises interest rate on future loan. L=actual interest rate on contract date R=contract rate D=days in contract period A=contract amount B=360 or 365 days Futures Contracts Futures contracts differ from forward contracts in that contractors deal with an exchange rather

• Tài chính doanh nghiệp
• Financial markets
• Lecture Financial markets
• Economics 252
• Monetary policy
• First futures market
• Forward contract
• Thị trường tài chính
• Financial futures markets
• Valuation of financial futures
• Interest rate futures
• Financial institutions
• Lecture Financial markets and institutions
• Financial institutions markets
• Capital markets
• Money markets
• Derivative securities markets
• Futures markets
• Option markets
• Swap markets
• Foreign exchange derivative markets
• Bank management
• Types of Financial Markets
• Securities traded
• Valuation of securities
• Money market yields
• Bond markets
• Municipal bonds
• Mortgage markets
• Primary mortgage market
• Stock markets
• Common stock
• Foreign exchange markets
• Foreign exchange
• Commercial banks
• Financial statements
• Risks at financial institutions
• Market risk
• Exchange rates
• Efficient markets
• Excess volatility
• Efficient Markets Hypothesis
• Interest rate derivative markets
• Interest rate swaps
• Mortgage backed securities
• Globalization of mortgage markets
• Financial markets and institutions
• The financial system
• Interest rates change
• Financial markets efficient
• Term structure affect interest rates
• The stock market
• The mortgage markets
• The international financial system
• Financial regulation
• Interest rate fundamentals
• Interest rates
• Security valuation