Page 40 - DMGT513_DERIVATIVES_AND_RISK_MANAGEMENT

Unit 3: Forward Contracts

3. What do you mean by a Forward Contract? Explain using a suitable example. Notes
4. "Forward contracts act as fore-runners of futures market". Critically evaluate the statement
in the light of growth of forward market worldwide.

5. Taking a hypothetical example, discuss the payoff profile from the forward contract.
6. Write a detailed note on classification of forward contracts with examples.
7. Briefly discuss the trading mechanism of the forward market.
8. What are important terms used in trading forward contract? Explain.

9. List the major features of forward contracts.
10. Explain the statement: "Forwards are zero-sum games".
11. Explain the various uses of forward contract with suitable examples.

Answers: Self Assessment

1. Transaction 2. Economic exposure

3. Translation 4. deep discounts
5. high, low or moderate 6. forward
7. standardized 8. counter party risk
9. zero-sum-game 10. zero
11. False 12. False

13. True 14. True
15. True

3.7 Further Readings

Books Apte, P.G., International Financial Management, Tata McGraw-Hill Publishing
Avadhani,V.A. : Securities Analysis and Portfolio Management.

Avadhani,V.A. : Capital Market Management.
Avadhani,V.A. : Investments and Securities Markets in India.
Bhole,L.M. : Financial Institutions and Markets.
Chance, Don M: An Introduction to Derivatives, Dryden Press, International Edition

Chew, Lilian: Managing Derivative Risk, John Wiley, New Jersey.
Company Limited, New Delhi, 1997.
Das, Satyajit: Swap & Derivative Financing, Probus.
"Derivatives Market" NCFM Module, NSE India Publications

FRB, “Overview of Derivative Disclosures by Major US Banks,” Federal
Reserve

LOVELY PROFESSIONAL UNIVERSITY 35