Chapitre 5 - Manuel Flashcards
Forward price and futures of an asset are usually ___ when ___
Forward price and futures of an asset are usually very close when the maturities are the same
True or false : we can use arbitrage arguments to determine the forward and futures price of a consuption asset
False : investment assets only
If at any time, the broker has to return the borrowed shares while the coontract is open and there are no other shares that can be borrowed, what does the investor has to do ?
- The investor is forced to close out the positin (fee charged often)
- Has to pay the broker any income that would be received on the securities that have been shroted (dividends or interests)
If the interest rate offered on the margin accunt is unacceptable, what can be used to meet margin requirements ?
Marketable securities (ex: Treasury bills)
What can arbitrageurs d when
A) F0 > F0 theoric ?
B) F0 < F0 theoric ?
A) Buy the asset and short forward contracts on the asset
B) Sell / short the asset and enter intoo long forward contracts on it
Why is the forward price higher than the spot price ?
Because of the cost of financing the spot purchase of the asset during the life of the forward contract
When is a known yield ? (not income
When expressed as percent of the asset’s price at the time the income is paid
When a futures price changes, the gain or lsos on a futures contract is calculated as ___
When a futures price changes, the gain or lsos on a futures contract is calculated as the change in the futures price multiplied by the size of the position
When a price changes, the gain or lsos on a futures contract is ___
What happens where there is a positive correlation between the price S of the underlying asset and the interest rates (3) ?
- When the S increases, the gains increases = interest rates increases
- The gains will be invested at a higher than average rate of interest
- Futures price > Forward price
What happens where there is a negative correlation between the price S of the underlying asset and the interest rates (3) ?
When S decreases, the loss increases = interest rate decreases
- Loss is financed at a lower than average rate of interest
- Futures price < Forward price
Why would a long futures contract be more attractive than a long forward contract ?
An investor holding a frward contract rather than a futures contract is not affected by interest wrates movements
True or false : dividendes prvide a known cash income
False : dividendes prvide a known yield
The dividendes used for estimating q should be those for which ___
The dividendes used for estimating q should be those for which ex-dividend date is during the life of the futures contract
What happens to settlement futures prices for currencies when r>rf?
Settlement futures prices for currencies increase with the life of the contract
What happens to settlement futures prices for currencies when r<rf></rf>
Settlement futures price for currencies decrease with the life of the futures cntract
What is the yield regarding a foreign currency ?
Risk-free rate of interest in the foreign currency
Convenience yield : definition
Benefits from holding the physcoal asset
What shuld be the convenience yield for investment assets ?
Zer obecause otherwise there are arbitrage opportunities
What is the market expecting when :
A) expected spt price < futures price ?
B) expected spt price > futures price ?
A) Expecting the futures price is going to decline so that traders with short poosition gain and traders with lng poosition lse
B) Expecting the futures pirce is going to rise so that traders with short position lose and traders with the long position gain
Systematic risk vs Non-systematic risk (3 v 3)
Systematic risk
- Cannot be diversified away
- Crrelation between return from the invest and returns from the stock market
- An investor generally requires a higher expected return
Non-systematic risk
- Should not be important to the investor
- Can almost be completely eliminated
- An investor should not require a higher expected return
When the asset underlying the futures contract has psitive systematic risk(k>r), we should expect the futures price to __ the expected future spot a
When the asset underlying the futures contract has psitive systematic risk (k>r), we should expect the futures price to understate the expected future spot price
F0 < E(ST)
When the asset underlying the futures contract has negative systematic risk (k<r></r>
When the asset underlying the futures contract has negative systematic risk overstate the expected future spot price
F0 > E(ST)
