1
What is a derivative contract?
A derivative contract is a financial contract that derives its value from an underlying asset.
Introduction to Derivative Markets
- 20 soru-cevap
- Fınancıal Economıcs (ENG)
2
What can be the underlying assets that are the subject of a derivative contract?
A derivative contract is a financial contract that derives its value from an underlying asset. The underlying asset could be a stock, a bond, a currency, a commodity, or even another derivative.
3
How has the total use of derivatives stabilized after 2009?
After 2009, the total use of derivatives stabilized with heavy regulations from central banks and other regulators.
4
What are the most popular derivative contracts?
The most popular derivative contracts are interest rate derivatives.
5
Which institution is qualified the central bank of central banks?
BIS is the central bank of central banks. All the relevant financial data on derivatives and banking can be found there.
6
What are the key differences between exchange-traded markets and over-the-counter (OTC) markets?
- Trading Process: In exchange-traded markets, buyers and sellers trade securities through a centralized exchange where the trades are executed and cleared by a third-party exchange. On the other hand, in OTC markets, buyers and sellers trade directly with each other, often through dealers or brokers, without needing a centralized exchange.
- Regulation: Exchange-traded markets are typically more regulated than OTC markets. Exchange traded securities are subject to strict regulatory requirements and oversight, which helps to ensure fair and orderly trading and investor protection. In contrast, OTC markets are generally less regulated, which may result in greater investor risk.
- Standardization: Exchange-traded security has specific standards regarding maturity, form of delivery, product quality, etc.
7
What are the specific standards for exchange-traded securities?
Exchange-traded security has specific standards regarding maturity, form of delivery, product quality, etc.
8
In general, what are spot markets and derivative markets used for?
The spot market is used for immediate transactions, while the derivative market is used for hedging or speculation.
9
What is the major difference between futures and forward contracts?
The major difference between the two is that forward contracts are traded in exchange traded markets, whereas future contracts are traded in OTC markets.
10
What is the party who buys the contract at a specific price on a future date called?
The party who buys the contract with a specified price and date in the future is known as the long position holder.
11
What is the important that discerns forwards from futures?
The collateral mechanism is an important feature that discerns forwards from futures.
12
What do both the buyer and the seller need to do to trade in the futures market?
To trade in a futures markets both the buyer and seller need to open margin accounts. In these accounts, a certain amount of cash needs to be deposited.
13
What are the three components that make up the margin mechanism in futures markets?
The margin mechanism in futures markets is designed to guarantee that investors have enough funds to cover any losses they may incur in their futures trading activities. This mechanism involves three components: initial margin, maintenance margin and variation margin.
14
What contracts companies use to protect against financial risks?
Corporations can use futures or forward contracts to hedge their financial risks by locking in a future price for an asset or liability.
15
What is an option contract?
An option contract is a financial contract between two parties, where one party (the holder or buyer of the option) has the right, but not the obligation, to buy or sell an underlying asset at a specified price (the strike price) and a specified date (the expiration date).
16
In which markets are option contracts traded?
Option contracts are traded both on exchanges and OTC’s.
17
What are the purposes for which option contracts can be used?
Option contracts can be used for speculation, hedging, or arbitrage purposes.
18
What is the most common type of swap?
The most common type of swap is an interest rate swap, in which one party agrees to pay a fixed interest rate to the other party in exchange for a variable interest rate.
19
What are the purposes for which swaps can be used?
Swaps can be used for various purposes, including reducing risk, managing cash flows, and generating profits.
20
Misuse or overuse of derivative products can also be quite dangerous. We have seen the damage they might create in the 2009 global crisis. So what are the requirements for these products?
Good regulation and financial literacy on these products are a must.