Lesson 5 Financial Instruments & Derivatives Flashcards
1
Q
What are the 3 characteristics of a derivative?
A
- Calls for net settlement in cash or equivalents
- Has one or more underlying sand notional amounts
- Requires no significant net investment
2
Q
What is a derivative?
A
A contract whose value is based on another contract or underlying index
3
Q
Examples of Derivatives
A
Option contracts,
such as stock option index
Futures contract
Such as currency futures
Interest rate or foreign currency swaps
NOT certificate of deposits
4
Q
What is intrinsic value of stock option?
A
Market price - strike price
Ex: $10 market - $9 strike
$1 x 100 shares =$100
