Derivatives Flashcards
What is a futures contract?
Standardised contract between two parties to buy or sell an asset at a fixed price and date in the future.
What kind of obligation does a futures contract represent?
Binding obligation to buy
What is the clearing house’s role?
To ensure credibility and liquidity of the market.
What will happen if price of underlying asset increases and
investor is long a futures contact?
Will gain. If short and underlying decrease will lose.
What is an option?
Right but not the obligation to buy or sell the underlying asset usually at a pre specified price and time in the future.
What is an option contract?
Gives holder the right to buy an asset known as call option.
What is a put option?
Option contract that gives holder right to sell the asset.
