financial forwards and futures

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1、5FinancialForwardsandFuturesForwardcontracts—whichpermitfirmsandinvestorstoguaranteeapriceforafuturepurchaseorsale—areabasicfinancialriskmanagementtool.Inthischapterwecontinuetoexplorethesecontractsandstudyindetailforwardandfuturescontractsonfinancialinstruments,suchasstocks,indexes,currencies,andint

2、erestrates.Ourobjectivesaretounderstandmoreabouttheuseofthesecontracts,howtheyarepriced,andhowmarket-makershedgethem.Questionstokeepinmindthroughoutthechapterinclude:Whomightbuyorsellspecificcontracts?Whatkindsoffirmsmightusethecontractforriskmanagement?Whyisthecontractdesignedasitis?5.1ALTERNATIVEW

3、AYSTOBUYASTOCKThepurchaseofashareofXYZstockhasthreecomponents:(1)fixingtheprice,(2)thebuyermakingpaymenttotheseller,and(3)thesellertransferringshareownershiptothebuyer.Ifweallowforthepossibilitythatpaymentandphysicalreceiptcanoccuratdifferenttimes—say,time0andtimeT—thenoncethepriceisfixedtherearefou

4、rlogicallypossiblepurchasingarrangements:Paymentcanoccurattime0orT,andphysicalreceiptcanoccurattime0orT.Table5.1depictsthesefourpossibilities,alongwiththeircustomarynames.Let’sdiscussthesedifferentarrangements.1Outrightpurchase.Thetypicalwaytothinkaboutbuyingstock.Yousimultaneouslypaythestockprice

5、incashandreceiveownershipofthestock.Fullyleveragedpurchase.Apurchaseinwhichyouborrowtheentirepurchasepriceofthesecurity.Supposeyouborrowtheshareprice,S0,andagreetorepaytheborrowed1.Allofthesearrangementscanbereversedinthecaseoftheseller.Problem5.1asksyoutodescribethemfromthatperspective.125126Chap

6、ter5.FinancialForwardsandFuturesTABLE5.1FourdifferentwaystobuyashareofstockthathaspriceS0attime0.Attime0youagreetoaprice,whichispaideithertodayorattimeT.Thesharesarereceivedeitherat0orT.Theinterestrateisr.PayatReceiveSecurityDescriptionTimeatTimePaymentOutrightpurchase00S0attime0Fullyleveragedpurc

7、haseT0S0erTattimeTPrepaidforwardcontract0T?ForwardcontractTT?×erTamountattimeT.Ifthecontinuouslycompoundedinterestrateisr,attimeTyouwouldoweerTperdollarborrowed,orS0erT.2Prepaidforwardcontract.Anarrangementinwhic