Derivatives

Question 1

SEC jurisdiction

Answer 1

securities swaps on a single security or loan, swaps of nine or fewer securities, and swaps of narrow-based security indices.

Question 2

CFTC jurisdiction

Answer 2

non securities swaps, swaps on broad based indices, swaps on government securities, cross currency swaps and & NDFs

Question 3

Margin

Answer 3

Collateral posted by parties to a derivative transaction. They are posted to guarantee the performance of a transaction. Margin protects against market or counterparty risk. In the event of default, the non-defaulting party can be paid out of the margin.

Question 4

Futures

Answer 4

an agreement between two parties for the purchase and delivery of an asset at an agreed-upon price at a future date. Futures are standardized contracts that trade on an exchange. Traders use a futures contract to hedge their risk or speculate on the price of an underlying asset. The parties involved are obligated to fulfill a commitment to buy or sell the underlying asset.

Question 5

Forwards

Answer 5

similar to futures, but they do not trade on an exchange. These contracts only trade over-the-counter. When a forward contract is created, the buyer and seller may customize the terms, size, and settlement process. As OTC products, forward contracts carry a greater degree of counterparty risk for both parties.

Question 6

Swaps

Answer 6

a derivative often used to exchange one kind of cash flow with another.

Question 7

Options

Answer 7

the buyer is not obliged to exercise their agreement to buy or sell. It is an opportunity only, not an obligation.