MNG FUTURES
Chapter notes, video classes, MCQ practice tests and quick-revision one-liners for Risk Management (Elective) — CAIIB.
One-liners from this chapter
Free sample — 8 of 65 rapid-fire Q&A cards.
What is a futures contract in the context of financial risk management?
A futures contract is a standardized, exchange-traded agreement to buy or sell an underlying asset at a predetermined price on a specified future date, used to hedge or speculate on price movements.
What is the minimum contract size typically specified in an exchange-traded futures contract?
Contract size is standardized and fixed by the exchange.
How does a futures contract differ from a forward contract?
Futures contracts are standardized and traded on recognized exchanges with daily mark-to-market settlement, while forward contracts are customized OTC agreements settled at maturity without daily margining.
What is the primary function of margin calls in futures markets?
Margin calls ensure traders maintain sufficient collateral in accounts.
What is the role of a clearinghouse in futures trading?
The clearinghouse acts as a central counterparty to both buyer and seller, guaranteeing contract performance and eliminating counterparty default risk through margining and daily settlement.
What does 'tick size' refer to in futures trading?
Tick size is the minimum price movement of a futures contract.
What is initial margin in futures trading?
Initial margin is the minimum deposit required by a futures exchange when opening a position, serving as a performance bond to cover potential adverse price movements.
How does a bank use interest rate futures to convert floating rate liability to fixed rate?
Bank shorts interest rate futures to lock in current rates.
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