Search icone
Search and publish your papers

Futures contracts in risk management companies can use trading on a US exchange

Or download with : a doc exchange

About the author

Tutor
Level
General public
Study
educational...
School/University
Nairobi...

About the document

Published date
Language
documents in English
Format
Word
Type
case study
Pages
6 pages
Level
General public
Accessed
0 times
Validated by
Committee Oboolo.com
0 Comment
Rate this document
  1. Introduction
  2. Literature Review
  3. Commodity futures charts
  4. Futures Contract Case study
  5. Conclusion

A futures contract is an accord between two parties who have agreed to buy or sell a particular commodity of an agreed quantity. The agreement is based on a future transaction in which the commodity will be paid for in future at a time agreeable by both of the parties. This term is common in finance. These contracts are done on mutual consent negotiated at futures exchange acting as an intermediary. The partner who has agreed to purchase the asset in question is referred to as a long whereas the party who sells the given asset is said to short.

The price agreed upon by both of the parties is the strike price. This means that the parties have agreed that the price is fair, and they will follow the accord. In this type of transaction, the buyer hopes that the price quoted in the transaction would rise in the future while the seller hopes that the price would decrease in the future. After the deal is sealed the buyers and the sellers would monitor the activities of the futures until the specified date comes. This trading method does not incorporate the usual products for trading.

[...] For instance contracts to be delivered for every quarter of the year. This instance of delivery is called a strip hedge. If the firm trades a certain quantity of contracts say 50 for a specific time period like a month. Then offset them on the second month while trading other contracts. This trading process is called a stacked hedge. The trading sessions tend to alternate with one another. The end of one transaction session is the end of another transaction session. [...]


[...] Futures contracts in risk management companies can use trading on a US exchange Executive Summary Futures contracts require two parties in order to be executed. It requires a buyer and a seller for complete transactions. The main reason for engaging in a futures exchange is to prepare stakeholders for any eventuality and be in a position of making appropriate decisions. The commodity items that are used in these transactions are intangible. These commodities include stocks, indexes and treasury bonds. A successful futures trade is referred to as a Cognito while an inverted futures trade is called a backwardation. [...]


[...] John Wiley & Sons Inc. GEMAN, H. (2008). Risk management in commodity markets from shipping to agriculturals and energy. Chichester, JAMES, T. (2008). Energy markets: price risk management and trading. Singapore, Wiley JORION, P. (2011). Financial risk manager handbook plus test bank FRM Part I/Part II. Hoboken, N.J., John Wiley & Sons. http://public.eblib.com/EBLPublic/PublicView.do?ptiID=644872 KOLB, R. W., & OVERDAHL, J. A. (2010). Financial derivatives pricing and risk management. [...]


[...] In the event one of the parties is not willing to proceed with the transaction, he or she has an option. They can take the opposite position on another futures contract and using the same asset but the date and time remain the same. The difference that comes after that is then a profit or a loss. Taking the side of one of the parties is a sign that one of the traders is conceding that whatever predictions they made might be wrong. [...]


[...] A single firm can hold both of the two risk management strategies at the same time (AL-AMINE 78). They can hold the short hedge and long hedge but for or different prices. In the absence of a futures contract, a cross contract is applied. It is recommended to use assets whose prices changes are as high as the estimated spot asset price. It is very vital for anyone who is about to engage in any contract to assess the liquidity of that particular asset. [...]

Similar documents you may be interested in reading.

Risk management and the use of derivatives

 Economics & finance   |  Finance   |  Presentation   |  09/25/2008   |   .doc   |   7 pages

A study on forex risk management

 Economics & finance   |  Finance   |  Research papers   |  03/20/2009   |   .doc   |   48 pages

Top sold for educational studies

The impact of the marketing environment: Greggs

 Social studies   |  Educational studies   |  Case study   |  07/06/2015   |   .doc   |   8 pages

Compare and contrast essay: Apocalypse Now and Full Metal Jacket, two views on the Vietnam war

 Social studies   |  Educational studies   |  Case study   |  09/05/2012   |   .doc   |   4 pages