Intiouuction

ChapLer 1
1
ize of 0TC anu Exchange-Tiaueu Naikets
(Figuie ., Page )
2
Source: Bank Ior International Settlements. Chart shows total principal
amounts Ior OTC market and value oI underlying assets Ior exchange
market
0
50
100
150
200
250
300
350
400
450
500
550
Jun-98 Jun-99 Jun-00 Jun-01 Jun-02 Jun-03 Jun-04 Jun-05 Jun-06 Jun-07
Size of
Market
($ trillion)
OTC
Exchange
ays Beiivatives aie 0seu
W @ hedge rlsks
W @ speculaLe (Lake a vlew Lhe fuLure dlrecLl f
Lhe markeL)
W @ lck l a arblLrage prflL
W @ chage Lhe aLure f a llablllLy
W @ chage Lhe aLure f a lvesLmeL wlLhuL
lcurrlg Lhe csLs f selllg e prLfll ad buylg
aLher
3
Foieign Exchange Quotes foi uBP,
}uly , (ee page )
4
Bid Offer
Spot 2.0558 2.0562
1-month forward 2.0547 2.0552
3-month forward 2.0526 2.0531
6-month forward 2.0483 2.0489
Foiwaiu Piice
W @he frward prlce fr a cLracL ls Lhe dellvery prlce LhaL
wuld be appllcable L Lhe cLracL lf were egLlaLed
Lday (le lL ls Lhe dellvery prlce LhaL wuld make Lhe
cLracL wrLh exacLly zer)
W @he frward prlce may be dlffereL fr cLracLs f
dlffereL maLurlLles
5
Teiminology
W @he parLy LhaL has agreed L buy has whaL ls
Lermed a lg pslLl
W @he parLy LhaL has agreed L sell has whaL ls
Lermed a shrL pslLl
6
Example (page )
W !uly 20 2007 Lhe Lreasurer f a crpraLl eLers lL a
lg frward cLracL L buy 1 mllll l slx mLhs aL a
exchage raLe f 20489
W @hls bllgaLes Lhe crpraLl L pay $2048900 fr 1 mllll
!auary 20 2008
W WhaL are Lhe psslble uLcmes?
7
Piofit fiom a
Long Foiwaiu Position
8
Protlt
Prlce ot Unoerlylng
at Maturlty, $
%

Piofit fiom a
hoit Foiwaiu Position
9
Protlt
Prlce ot Unoerlylng
at Maturlty, $
%

Futuies Contiacts (page )

W greemeL L buy r sell a asseL fr a cerLal prlce aL a
cerLal Llme
W Slmllar L frward cLracL
W Whereas a frward cLracL ls Lraded @C a fuLures cLracL
ls Lraded a exchage
10
Exchanges Tiauing Futuies
W Chlcag 8ard f @rade
W Chlcag MercaLlle Lxchage
W LlllL (Ld)
W Lurex (Lurpe)
W 8Ml (Sa aul 8razll)
W @lllL (@ky)
W ad may mre (see llsL aL ed f bk)
11
Examples of Futuies Contiacts
greemeL L
W 8uy 100 z f gld [ uS$900/z l uecember (n?MLx)
W Sell 62300 [ 20300 uS$/ l March (CML)
W Sell 1000 bbl f ll [ uS$120/bbl l prll (n?MLx)
12
. uolu: An Aibitiage
0ppoitunity.
Suppse LhaL
@he spL prlce f gld ls uS$900
@he 1year frward prlce f gld ls uS$1020
@he 1year uS$ lLeresL raLe ls 3 per aum
ls Lhere a arblLrage pprLulLy?
13
. uolu: Anothei Aibitiage 0ppoitunity.
Suppse LhaL
@he spL prlce f gld ls uS$900
@he 1year frward prlce f gld ls uS$900
@he 1year uS$ lLeresL raLe ls 3 per aum
ls Lhere a arblLrage pprLulLy?
14
The Foiwaiu Piice of uolu
lf Lhe spL prlce f gld ls ad Lhe frward prlce fr a
cLracL dellverable l % years ls Lhe
$(17)
%
where 7 ls Lhe 1year (dmesLlc currecy) rlskfree raLe f
lLeresL
l ur examples $ 900 % 1 ad 7 003 s LhaL
900(1+003) 943
15
. 0il: An Aibitiage 0ppoitunity.
Suppse LhaL
@he spL prlce f ll ls uS$93
@he quLed 1year fuLures prlce f ll ls uS$123
@he 1year uS$ lLeresL raLe ls 3 per aum
@he sLrage csLs f ll are 2 per aum
ls Lhere a arblLrage pprLulLy?
16
. 0il: Anothei Aibitiage
0ppoitunity.
Suppse LhaL
@he spL prlce f ll ls uS$93
@he quLed 1year fuLures prlce f ll ls uS$80
@he 1year uS$ lLeresL raLe ls 3 per aum
@he sLrage csLs f ll are 2 per aum
ls Lhere a arblLrage pprLulLy?
17
0ptions
W call pLl ls a pLl L buy a cerLal asseL by a cerLal
daLe fr a cerLal prlce (Lhe sLrlke prlce)
W puL pLl ls a pLl L sell a cerLal asseL by a cerLal
daLe fr a cerLal prlce (Lhe sLrlke prlce)
18
Ameiican vs Euiopean 0ptions
W merlca pLl ca be exerclsed aL ay Llme durlg lLs llfe
W Lurpea pLl ca be exerclsed ly aL maLurlLy
19
Intel 0ption Piices (ept , ; tock Piice=9.);ee Table
. page ; ouice: CB0E
20
Strike
Price
Oct
Call
Jan
Call
Apr
Call
Oct
Put
Jan
Put
Apr
Put
15.00 4.650 4.950 5.150 0.025 0.150 0.275
17.50 2.300 2.775 3.150 0.125 0.475 0.725
20.00 0.575 1.175 1.650 0.875 1.375 1.700
22.50 0.075 0.375 0.725 2.950 3.100 3.300
25.00 0.025 0.125 0.275 5.450 5.450 5.450
Exchanges Tiauing 0ptions
W Chlcag 8ard pLls Lxchage
W merlca SLck Lxchage
W hlladelphla SLck Lxchage
W aclflc Lxchage
W LlllL (Ld)
W Lurex (Lurpe)
W ad may mre (see llsL aL ed f bk)
21
0ptions vs FutuiesFoiwaius
W fuLures/frward cLracL glves Lhe hlder Lhe bllgaLl L
buy r sell aL a cerLal prlce
W pLl glves Lhe hlder Lhe rlghL L buy r sell aL a cerLal
prlce
22
Types of Tiaueis
23
W edgers
W Speculators
W rbitrageurs
Some oI the largest trading losses in derivatives have
occurred because individuals who had a mandate to be
hedgers or arbitrageurs switched to being speculators (See
Ior example Barings Bank, Business Snapshot 1.2, page 15)
euging Examples (pages -)
W uS cmpay wlll pay 10 mllll fr lmprLs frm 8rlLal l
3 mLhs ad decldes L hedge uslg a lg pslLl l a
frward cLracL
W lvesLr ws 1000 MlcrsfL shares curreLly wrLh $28
per share LwmLh puL wlLh a sLrlke prlce f $2730 csLs
$1 @he lvesLr decldes L hedge by buylg 10 cLracLs
24
alue of Niciosoft haies with anu
without euging (Fig ., page )
25
20,000
25,000
30,000
35,000
40,000
20 25 30 35 40
VaIue of HoIding
($)
Stock Price ($)
o Hedging
Hedging
peculation Example
W lvesLr wlLh $2000 L lvesL feels LhaL a sLck prlce wlll
lcrease ver Lhe exL 2 mLhs @he curreL sLck prlce ls
$20 ad Lhe prlce f a 2mLh call pLl wlLh a sLrlke f
2230 ls $1
W WhaL are Lhe alLeraLlve sLraLegles?
26
Aibitiage Example
W sLck prlce ls quLed as 100 l Ld ad $200 l new
?rk
W @he curreL exchage raLe ls 20300
W WhaL ls Lhe arblLrage pprLulLy?
27
euge Funus (see Business napshot ., page 9)
W edge fuds are L sub[ecL L Lhe same rules as
muLual fuds ad caL ffer Lhelr securlLles publlcly
W MuLual fuds musL
W dlsclse lvesLmeL pllcles
W makes shares redeemable aL ay Llme
W llmlL use f leverage
W Lake shrL pslLls
W edge fuds are L sub[ecL L Lhese csLralLs
W edge fuds use cmplex Lradlg sLraLegles are blg
users f derlvaLlves fr hedglg speculaLl ad
arblLrage
28
hat is the uiffeience between a long foiwaiu
position anu a shoit foiwaiu position.
W lg frward pslLl lmplles LhaL yu are wllllg L Lhe
uderlylg asseL fr a predeLermled prlce aL sme agreed
up daLe l Lhe fuLure
W shrL frward pslLl lmplles LhaL yu are agreelg L
Lhe uderlylg asseL fr a predeLermled prlce aL sme
agreed up daLe l Lhe fuLure
29
hat is the uiffeience between heuging, speculation
anu aibitiage.
W edglg wuld mea LhaL a Lrader has a expsure L Lhe
asseL Lhls expsure ls sughL L be 'cvered' by uderLaklg a
pslLl l a derlvaLlve Lhls 'ffseLs' Lhe expsure
W SpeculaLl wuld mea LhaL Lhere ls expsure L Lhe
uderlylg beLLlg ls belg carrled uL Lhe fuLure prlce f
Lhe uderlylg asseL
W rblLrage lmplles Laklg a pslLl l Lw r mre dlffereL
markeLs l rder L lck l a prflL
30
hat is the uiffeience between selling a call option
anu buying a put option.
W
31
32
This is not a solved example, ladies and
gentlemen. You tell me!
A tiauei enteis into a shoit cotton futuies contiact
when the futuies piice is cents pei pounu. The
contiact is foi the ueliveiy of , pounus. ow
much uoes the tiauei gain oi lose if the cotton piice
at the enu of the contiact is:
a) 8. cents pei pounu
b) . cents pei pounu
33
You know the drill by now, surely
uppose that you wiite a put contiact with a stiike
piice of anu an expiiation uate in months. The
cuiient stock piice is anu the contiact is on
shaies. hat have you committeu youiself to. ow
much coulu you gain oi lose.
34
ou woulu like to speculate on a iise in the piice of a
ceitain stock. The cuiient stock piice is 9 anu a
thiee month call with a stiike of costs .9. ou
have ,8 to invest. Iuentify two alteinative
stiategies, one involving an investment in the stock
anu the othei involving investment in the option.
hat aie the potential gains anu losses fiom each.
35
uppose that you own shaies woith each.
ow can put options be useu to pioviue you with
insuiance against a uecline in the value of youi
holuing ovei the next foui months.
36
uppose that a Naich call option to buy a shaie foi
costs . anu is helu until Naich. 0nuei what
ciicumstances will the holuei of the option make a
piofit. 0nuei what ciicumstances will the option be
exeiciseu. Biaw a uiagiam illustiating how the piofit
fiom a long position in the option uepenus on the
stock piice at matuiity of the option.
37
uppose that a }une put option to sell a shaie foi
costs anu is helu until }une. 0nuei what
ciicumstances will the sellei of the option (i.e., the
paity with the shoit position) make a piofit. 0nuei
what ciicumstances will the option be exeiciseu.
Biaw a uiagiam illustiating how the piofit fiom a
shoit position in the option uepenus on the stock
piice at matuiity of the option
38
It is Nay anu a tiauei wiites a eptembei call option
with a stiike piice of . The stock piice is 8 anu
the option piice is . Besciibe the tiauei's cash
flows if the option is helu until eptembei anu the
stock piice is at the time.
A tiauei wiites a Becembei put option with a stiike
piice of . The piice of the option is . 0nuei what
ciicumstances uoes the tiauei make a gain.
39
Tbe Time Value of Money Tbe Time Value of Money
W WhaL ls Lhe @lme value f Mey"?
W Cmpud lLeresL
W luLure value
W reseL value
W lrequecy f Cmpudlg
W ulLles
W MulLlple Cash llws
W WhaL ls Lhe @lme value f Mey"?
W Cmpud lLeresL
W luLure value
W reseL value
W lrequecy f Cmpudlg
W ulLles
W MulLlple Cash llws
bvlusly $1000 Lday $1000 Lday
Mey recelved ser raLher Lha laLer
allws e L use Lhe fuds fr lvesLmeL r
csumpLl purpses @hls ccepL ls
referred L as Lhe Llme value f mey Llme value f mey
Tbe Time Value of Money Tbe Time Value of Money
Whlch wuld yu raLher have $1000 Lday $1000 Lday
r $1000 l 3 years? $1000 l 3 years?
@lML @lML allws e Lhe L psLpe csumpLl
ad ear ln@L8LS@ ln@L8LS@
NC1 havlg Lhe pprLulLy L ear lLeresL mey ls
called CCk1UNI1 CCS1
by TIME? by TIME?
ow can one compare amounts in different time
periods?
ow can one compare amounts in different time
periods?
W e ca ad[usL values frm dlffereL Llme perlds uslg a
lLeresL raLe
W 8emember e Cnn@ cmpare umbers l dlffereL Llme
perlds wlLhuL flrsL ad[usLlg Lhem uslg a lLeresL raLe
ompound Interest ompound Interest
Whe lLeresL ls pald L ly Lhe prlclpal amuL lvesLed buL als ay
prevlus lLeresL eared Lhls ls called cmpud lLeresL
lv rlclpal + (rlclpal x lLeresL)
2000 + (2000 x 06)
2000 (1 + l)
v (1 + l)
nLe v refers L reseL value r rlclpal
lf yu lvesLed $2000 Lday l a accuL LhaL pays $2000 Lday l a accuL LhaL pays
66 lLeresL wlLh lLeresL cmpuded aually
hw much wlll be l Lhe accuL aL Lhe ed f Lw
years lf Lhere are wlLhdrawals?
uture Value uture Value
0 1 2
$2,000 $2,000
FV FV
6%
lv lv
11
v v (1+l)

$2000 $2000 (106)

2
$224720 $224720
uture Value uture Value
FV = future value, a value at some future point in time
PV = present value, a value today which is usually designated as time 0
i = rate of interest per compounding period
n = number of compounding periods
!h waLs L kw hw large hls $3000 $3000 depslL wlll
becme aL a aual cmpud lLeresL raLe f 8 aL
Lhe ed f 3 years 3 years
uture Value Example uture Value Example
0 1 2 3 4 5 5
$5,000 $5,000
FV FV
5 5
8%
uture Value Solution uture Value Solution
Calculation based on general formula:
FV FV
n n
= PV (1+i)
n
FV FV
5 5
= $5,000 (1+ 0.08)
5
= $7,346.64 $7,346.64
ouble Your Money!!! ouble Your Money!!!
"uick! How long does it take to double
$5,000 at a compound rate of 12% per
year (approx.)?
We will use the " "Rule Rule- -of of- -72 72 ..
resent Value resent Value
W Slce lv v(1 + l)

v v lv lv / (1+l)

W ulscuLlg ls Lhe prcess f LraslaLlg a fuLure value r a seL

f fuLure cash flws lL a preseL value
ssume LhaL yu eed L have exacLly $4000 $4000 saved
10 years frm w years frm w w much musL yu depslL
Lday l a accuL LhaL pays 6 lLeresL
cmpuded aually s LhaL yu reach yur gal f
$4000?
0 5 5 10
$4,000 $4,000
6%
PV PV
0 0
resent Value resent Value
v v
00
lv lv / (1+l)
2
$4000 $4000 / (106)
10
$223338 $223338
resent Value resent Value
0 5 5 10
$4,000 $4,000
6%
PV PV
0 0
!a eeds L kw hw large f a depslL L
make Lday s LhaL Lhe mey wlll grw L $2300 $2300
l 3 years ssume Lday's depslL wlll grw aL a 3 years ssume Lday's depslL wlll grw aL a
cmpud raLe f cmpud raLe f 4 aually
resent Value Example resent Value Example
0 1 2 3 4 5 5
$2,500 $2,500
PV PV
0 0
4%
W CalculaLl based geeral frmula
W W v v
00
lv lv

/ (1+l)

W W v v
00
$2300/( $2300/(104) 104)
33
W $203481
resent Value Solution resent Value Solution
inding "n" or "i" wben one knows V and Vb inding "n" or "i" wben one knows V and Vb
W W lf e lvesLs $2000 Lday ad has accumulaLed $267643 lf e lvesLs $2000 Lday ad has accumulaLed $267643
afLer exacLly flve years whaL raLe f aual cmpud lLeresL afLer exacLly flve years whaL raLe f aual cmpud lLeresL
was eared? was eared?
eeral lrmula
lv

v v
00
(1 + l/m)
m
number f ?ears
m Cmpudlg erlds per ?ear
l ual lLeresL 8aLe
lv
m
lv aL Lhe ed f ?ear
v v
00
v f Lhe Cash llw Lday
requency of ompounding requency of ompounding
requency of ompounding Example requency of ompounding Example
W Suppse yu depslL $1000 l a accuL LhaL
pays 12 lLeresL cmpuded quarLerly w
much wlll be l Lhe accuL afLer elghL years lf
Lhere are wlLhdrawals?
v $1000
l 12/4 3 per quarLer
8 x 4 32 quarLers
Solution based on formula: Solution based on formula:
lv v (1 + l)

1000(103)
32

237310
nnuities nnuities
W Lxamples f ulLles lclude
SLudeL La aymeLs
Car La aymeLs
lsurace remlums
MrLgage aymeLs
8eLlremeL Savlgs
3 3,33:9 ,33:9 represents a series of equal payments (or
receipts) occurring over a specified number of
equidistant periods.
lv lv
33
$1000(107)
2
+ $1000(107)
1
+ $1000(107)
0
$$3213 3213
Example of an Urdinary nnuity -- V Example of an Urdinary nnuity -- V
$1,000 $1,000 $1,000
0 1 2 3 3 4
$3,215 = FVA $3,215 = FVA
3 3
End of Year
7%
$1,070
$1,145
f one saves $1,000 a year at the end of every year for three f one saves $1,000 a year at the end of every year for three
years in an account earning 7% interest, compounded years in an account earning 7% interest, compounded
annually, how much will one have at the end of the third year? annually, how much will one have at the end of the third year?
v v
33
$1000/(107)
1
+ $1000/(107)
2
+$1000/(107)
3
$262432 $262432
Example of an Urdinary nnuity -- V Example of an Urdinary nnuity -- V
$1,000 $1,000 $1,000
0 1 2 3 3 4
$2,624.32 = PVA $2,624.32 = PVA
3 3
End of Year
7%
$934.58
$873.44
$816.30
f one agrees to repay a loan by paying $1,000 a year at the f one agrees to repay a loan by paying $1,000 a year at the
end of every year for three years and the end of every year for three years and the discount rate discount rate is is
7%, how much could one borrow today? 7%, how much could one borrow today?
Suppse a lvesLmeL prmlses a cash flw f $300 l e
year $600 aL Lhe ed f Lw years ad $10700 aL Lhe ed f
Lhe Lhlrd year lf Lhe dlscuL raLe ls 3 whaL ls Lhe value f
Lhls lvesLmeL Lday?
Multiple asb lows Example Multiple asb lows Example
0 1 2 3
$500 $600 $10,700 $500 $600 $10,700
PV PV
0 0
5% 5%
Multiple asb low Solution Multiple asb low Solution
0 1 2 3
$500 $600 $10,700 $500 $600 $10,700
5%
$476.19 $476.19
$544.22 $544.22
$9,243.06 $9,243.06
$10,263.47 $10,263.47 = = PV PV
0 0
of the Multiple of the Multiple
Cash Flows Cash Flows
roblem roblem
?u musL declde beLwee $23000 l cash Lday r $30000 l
cash L be recelved Lw years frm w lf yu ca ear 8
lLeresL yur lvesLmeLs whlch ls Lhe beLLer deal?
roblem roblem
W WhaL ls Lhe value f $100 per year fr fur years wlLh Lhe flrsL
cash flw e year frm Lday lf e ls earlg 3 lLeresL
cmpuded aually? lld Lhe value f Lhese cash flws
fur years frm Lday
Nechanics of Futuies Naikets
ChapLer 2
Futuies Contiacts
W vallable a wlde rage f asseLs
W Lxchage Lraded
W SpeclflcaLls eed L be defled
W WhaL ca be dellvered
W Where lL ca be dellvered
W Whe lL ca be dellvered
W SeLLled dally
Naigins
W margl ls cash r markeLable securlLles
depslLed by a lvesLr wlLh hls r her brker
W @he balace l Lhe margl accuL ls ad[usLed L
reflecL dally seLLlemeL
W Margls mllmlze Lhe psslblllLy f a lss
Lhrugh a defaulL a cLracL
Example of a Futuies Tiaue (page
-8)
W lvesLr Lakes a lg pslLl l 2
uecember gld fuLures cLracLs !ue 3
W cLracL slze ls 100 z
W fuLures prlce ls uS$600
W margl requlremeL ls uS$2000/cLracL
(uS$4000 l LLal)
W malLeace margl ls uS$1300/cLracL
(uS$3000 l LLal)
A Possible 0utcome
Table ., Page 8
aily Cumulative Margin
Futures Gain Gain ccount Margin
Price (Loss) (Loss) Balance Call
ay (US$) (US$) (US$) (US$) (US$)
600.00 4,000
5-Jun 597.00 (600) (600) 3,400 0
. . . . . .
. . . . . .
. . . . . .
13-Jun 593.30 (420) (1,340) 2,660 1,340
. . . . . .
. . . . .
. . . . . .
19-Jun 587.00 (1,140) (2,600) 2,740 1,260
. . . . . .
. . . . . .
. . . . . .
26-Jun 592.30 260 (1,540) 5,060 0

4,000
3,000

4,000

0thei Key Points About Futuies

W @hey are seLLled dally
W Clslg uL a fuLures pslLl lvlves
eLerlg lL a ffseLLlg Lrade
W MsL cLracLs are clsed uL befre
maLurlLy
Collateialization in 0TC Naikets
W lL ls becmlg lcreaslgly cmm fr cLracLs
L be cllaLerallzed l @C markeLs
W @hey are Lhe slmllar L fuLures cLracLs l LhaL
Lhey are seLLled regularly (eg every day r every
week)
Futuies Piices foi uolu on }an 8, : Piices
Inciease with Natuiity (Figuie .a, page )
600
610
620
630
640
650
Jan-07 Apr-07 Jul-07 Oct-07 Jan-08

u
t
u
r
e
s

P
r
i
c
e

(
$

p
e
r

o
z
)
Contract Maturity Month
Futuies Piices foi 0iange }uice on }anuaiy 8, :
Piices Beciease with Natuiity (Figuie .b, page )
170
175
180
185
190
195
200
205
210
Jan-07 Mar-07 May-07 Jul-07 Sep-07 ov-07

u
t
u
r
e
s

P
r
i
c
e

(
c
e
n
t
s

p
e
r

I
b
)
Contract Maturity Month
Beliveiy
W lf a fuLures cLracL ls L clsed uL befre
maLurlLy lL ls usually seLLled by dellverlg Lhe
asseLs uderlylg Lhe cLracL Whe Lhere
are alLeraLlves abuL whaL ls dellvered
where lL ls dellvered ad whe lL ls dellvered
Lhe parLy wlLh Lhe shrL pslLl chses
W few cLracLs (fr example Lhse sLck
ldlces ad Lurdllars) are seLLled l cash
ome Teiminology
W pe lLeresL Lhe LLal umber f cLracLs
uLsLadlg
W equal L umber f lg pslLls r umber f shrL pslLls
W SeLLlemeL prlce Lhe prlce [usL befre Lhe flal
bell each day
W used fr Lhe dally seLLlemeL prcess
W vlume f Lradlg Lhe umber f Lrades l 1
day
Conveigence of Futuies to pot (Figuie
., page )
Time Time
(a) (b)
Futures
Price
Futures
Price
Spot Price
Spot Price
egulation of Futuies
W 8egulaLl ls deslged L prLecL Lhe
publlc lLeresL
W 8egulaLrs Lry L preveL quesLlable
Lradlg pracLlces by elLher ldlvlduals
Lhe flr f Lhe exchage r uLslde
grups
Accounting & Tax
W ldeally hedglg prflLs (lsses) shuld be
recglzed aL Lhe same Llme as Lhe lsses
(prflLs) Lhe lLem belg hedged
W ldeally prflLs ad lsses frm speculaLl
shuld be recglzed a markLmarkeL
basls
W 8ughly speaklg Lhls ls whaL Lhe
accuLlg ad Lax LreaLmeL f fuLures l
Lhe uS ad may Lher cuLrles aLLempLs
L achleve
Foiwaiu Contiacts vs Futuies
Contiacts
Contract usually closed out
TBLE 2.3 (p. 39)
Private contract between 2 parties Exchange traded
Non-standard contract Standard contract
Usually 1 speciIied delivery date Range oI delivery dates
Settled at end oI contract Settled daily
elivery or Iinal cash
settlement usually occurs prior to maturity
FORWARDS FUTURES
Some credit risk
Virtually no credit risk
Foieign Exchange Quotes
W luLures exchage raLes are quLed as Lhe
umber f uSu per ulL f Lhe frelg currecy
W lrward exchage raLes are quLed l Lhe same
way as spL exchage raLes @hls meas LhaL
8 Lu8 uu ad nZu are quLed as uSu per
ulL f frelg currecy Lher currecles (eg
Cu ad !?) are quLed as ulLs f Lhe frelg
currecy per uSu