1. What best describes a derivative contract?
2. Which feature distinguishes a futures contract from a forward contract?
3. When a forward is overpriced relative to fair value, which strategy creates a riskless profit?
Derivative — definition?
A contract whose value depends on an underlying asset.
Forward contract — role?
Obligation to buy or sell at a future date.
Futures contract — function?
Exchange-traded standardized forward settled daily.
Options contract — role?
Gives holder right but not obligation to buy/sell.
Call option — right?
Right to buy at strike K.
Put option — right?
Right to sell at strike K.
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