Concept of forward/futures, call/put option, arbitrage,
hedging, speculation, collateral management?
- 2 Answers
- 7747 Views
- Mellon, I also Faced
- E-Mail Answers
Answer Posted / kunal ingale
1. Forward:-
In finance, a forward contract or simply a forward is a non-standardized contract between two parties to buy or sell an asset at a specified future time at a price agreed upon today.[1] This is in contrast to a spot contract, which is an agreement to buy or sell an asset today.
2. Futures:-
In finance, a futures contract is a standardized contract between two parties to exchange a specified asset of standardized quantity and quality for a price agreed today (the futures price or the strike price) with delivery occurring at a specified future date, the delivery date. The contracts are traded on a futures exchange. The party agreeing to buy the underlying asset in the future, the "buyer" of the contract, is said to be "long", and the party agreeing to sell the asset in the future, the "seller" of the contract, is said to be "short".
3. Call/put option:-
Broadly speaking, options can be classified as ‘call’ options and ‘put’ options. When you buy a ‘call’ option, on a stock, you acquire a right to buy the stock. And when you buy a ‘put’ option, you acquire a right to sell the stock. You can also sell a ‘call’ option, in which, you will acquire an obligation to deliver the stock.
4. Arbitrage:-
In economics and finance, arbitrage is the practice of taking advantage of a price difference between two or more markets: striking a combination of matching deals that capitalize upon the imbalance, the profit being the difference between the market prices. When used by academics, an arbitrage is a transaction that involves no negative cash flow at any probabilistic or temporal state and a positive cash flow in at least one state; in simple terms, it is the possibility of a risk-free profit at zero cost.
5. Hedging:-
Hedging means reducing or controlling risk. This is done by taking a position in the futures market that is opposite to the one in the physical market with the objective of reducing or limiting risks associated with price changes
Hedging is a two-step process. A gain or loss in the cash position due to changes in price levels will be countered by changes in the value of a futures position.
6. Speculation:-
Speculation is a financial action that does not promise safety of capital investment along with the return on the principal sum.[1] A person or entity that engages in speculation is known as a Speculator. Speculation typically involves the lending of money for the purchase of assets, equity or debt but in a manner that has not been given thorough analysis or is deemed to have low margin of safety or a significant risk of the loss of the principal investment.
7. Collateral management:-
Borrowing funds often requires the designation of collateral on the part of the recipient of the loan.
Collateral is legally watertight, valuable liquid property[3] that is pledged by the recipient as security on the value of the loan.
The main reason of taking collateral is credit risk reduction, especially during the time of the debt defaults, the currency crisis and the failure of major hedge funds. But there are many other motivations why parties take collateral from each other.
| Is This Answer Correct ? | 2 Yes | 0 No |
Post New Answer View All Answers
EXPAND___________LNG
what is capital market and money market? what is primary market and secondary market?
Dear All, myself B.k Singh graduate with B.Com and PGDBM - Finance, I was worked with Service Company for 6 yrs.Now past 2yrs working with Real Estate,moreover I want to some course short term, plz guide me.
Can someone tell me about SAP FI/CO test questions?WHat are the main things we must know?
Two months rent of Rs 25000/- was adjusted in Rental advance account at the time vacating office
What is ABC Analysis in industrial function. hw can it s maintain ?
Expand MNS
what is mean by account concept,and how to perpare a full accounting concept journal,ledger,trail balance,and balance sheet how it will prepare in upto fainalaztion.
let me know the difference between net cash flow and income
what amounts to appropriation of profits? When provision for taxation does not amount to appropriation of profits?
please answer this question.the following balances were extracted from the books of modern traders on 31st dec,2010.capital(85000)fixed assets(45000)stock1-1-2010(15000)sundry debtors(20600)productive exp(3300)reserves fund(6600)discount received(800)cash in hand(6200)drawing(5000)accomulated dep.(9000)purchases(82000)bad debts(400)unproductive exp.(27400)sundry creditors(9000)sales(120000)cash at bank(25500).adjustments.stock on 31-12-2010(15000).outstanding wages (5000) write-off (600)of further bad debts. create provision for bad & doubtful debts at {5%) on debtors.unproductive expenses includes anitem of prepaid insurance (100).provide depreciation on original cost of fixed assets @ (10%).
my boss (Managing Partner of a firm) promoted along with his wife a private limited company. he and she spent some Rs. 75,000/- (approx) for the promotion of the company. i know that they usually fall under the head of preliminary expenses. but after receiving the certification of incorporation of the company how shall i repay them to the promoters i.e. what is the accounting entry in the books (initial books of accounts) for the expenditure incurred. they have kept in hand 5,00,000/- each to meet the expenses and they were allotted shares of equal to the amount. can i allot shares for a consideration of cash from and excluding the preliminary expenses. can i take cash towards the share application money (being the cash more than Rs. 20,000/-) as the company has not opened a bank account yet. please give me the detailed answer with journal entries that can be entered in tally. thank you.
Who will be called as consignee
if a person join company on 01-04-04. after 5 year he is resigned on 31-03-09 and date of leaving is 14-04-09. Is he is on under gratuity payable or not? he is completed 5 years on 31-03-09. what is basis on calcultion on final settlement is date of resignation or date of leaving whcih is on 14-04-09.
What is Merger?
