5. Derivatives Flashcards
1
Q
What are hard and soft commodities?
A
Hard; mined/quarried
Soft; grown/harvested
2
Q
What are call and put options?
A
Call; right to buy asset
Put; right to sell asset
3
Q
What is the difference between American and European options?
A
European; option can be exercised on expiry date only
American; option can be exercised any time up to expiry date
4
Q
What is the conversion ratio (parity) for warrants?
A
How many warrants are required to cover one unit of the underlying asset
5
Q
Key features of CFDs? (7)
A
- Agreement to settle difference between opening and closing price of a share
- Open ended
- Deposit of 10-25% required
- Investor pays commission 0.25%
- Investor pays (receives) interest for long (short) trade
- Margin call if contract moves against investor; increase deposit
- Can set a stop loss
