Page 124 - DCOM510_FINANCIAL_DERIVATIVES

Unit 7: Application of Futures Contracts

6. What are the disadvantages of long hedge? Notes
7. Write down the difference between trading securities and trading futures on individual
securities.

8. Define the term ‘Hedge ratio’. Explain the concept and significance of hedge ratio.
9. Can futures contracts be used for speculation benefits? Support your answer with suitable
numerical illustrations.

10. What do understand by ‘arbitrage?’ How can futures be useful for arbitrage gains?
Answers: Self Assessment

1. False 2. False
3. True 4. True
5. Securities 6. Trading
7. Cash accounts 8. Low, high

9. Selling 10. Speculators, arbitrager
11. Investment portfolio 12. Diversification
13. Hedge ratio 14. Individual

15. Arbitrage 16. True
17. True 18. True
19. False 20. False

7.8 Further Readings

Books Chance, Don M. An Introduction to Derivatives, Dryden Press, International
Edition
Chew, Lilian: Managing Derivative Risk, John Wiley, New Jersey.
Das, Satyajit: Swap & Derivative Financing, Probus.
Derivatives Market NCFM Module, NSE India Publications

Online links ww.nyce.com (New York Futures Exchange)
www.nyse.com (New York Stock Exchange)
www.simen.com.sg (Singapore International Stock Exchange)

www.amex.com (American Stock Exchange)
www.cbot.com (Chicago Board of Exchange)
www.nse.org
http://www.nseindia.com/content/ncfm/ncfm_modules.htm

LOVELY PROFESSIONAL UNIVERSITY 119