5.4 Financial Derivatives Markets 金融衍生市场

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课堂练习:

The term “derivative” in financial marketsrefers to any instrument or contract that derives its value from anotherunderlying asset, instruments or contracts. The fastest growing derivativesinclude: financial forwards, futures, options and swaps.

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1. Forward 远期

视频1：什么是远期合约

A forward contract is a particular simple derivative. Forward contracts are agreements by two parties to engage in a financial transaction at a future point in time. Forward contracts are personalized between parties

1.Two parties agree to exchange some item in the future at a delivery price specified now.

2.The forward price is defined as the delivery price that makes the current market value of the contract zero.

3.No money is paid in the present by either party to the other.

4.The face value of the contract is the quantity of the item specified in the contract times the forward price.

5.The party who agrees to buy the specified item is said to take a long position, and the party who agrees to sell the item is said to take a short position.

The advantage of forward contracts is that they can be as flexible as the parties involved want them to be.

However, forward contracts suffer from two problems that severely limit their usefulness. The first is that it may be very hard for an institution to find another party to make the contract with. The second is that forward contracts are subject to default risk, which means that parties to these contracts must check each other out to be sure that the counter party is both financially sound and likely to be honest and live up to its contractual obligations.

2. Futures 期货

视频：什么是期货

Futures can be defined as a standardized future contract, traded in futures exchange, stipulating the parties to buy or sell a certain underlying item at a certain date and a set price in the future. The future date is called the delivery date or final settlement day. The price of underlying items on the delivery date is called the settlement price.

The buyers and sellers of futures can be classified as hedgers or speculators. Hedgers use futures to minimize risk, like the farmers who use futures to guarantee a price for their product when they will be sold after harvest.

Futures can also be used to hedge investment portfolio. However, speculators use futures to make a profit, by buying low and selling high(not necessarily in that order). The speculator has no intension of making or taking delivery. A speculator is making a bet on the future.

3. Option 期权

视频：什么是期权

Options are contracts that give the purchaser the right to buy or sell the underlying financial instrument at a specified price within a specific period of time. The seller of the option is obligated to buy or sell the financial instrument to the purchaser if the owner of the option exercises the right to sell or buy.

A call option is the right to buy a given quantity of an underlying asset at a predetermined price on or before a specific date.

A put option gives the holder the right but not the obligation to sell the underlying asset at a predetermined price on or before a fixed date.

The options can also be divided into the two groups of American options and European options.

An American option can be exercised at any time up to the expiration date of the contract.

European option can be exercised only on the expiration date.

4. Swap 互换/掉期

视频：什么是掉期

Swap contracts, in comparison to forward, futures and options, are one of the more recent innovations in financial derivative markets. Swaps were first introduced to the public in 1981 when IBM and the World Bank entered into a swap agreement.

Interest rate swap refers to one party agrees to swap cash flows with another party. A typical usage of interest rate swap is a swap of fixed interest rate with floating interest rate.

For example, firm A may have a fixed-rate loan while another firm B may have a floating-rate loan; each of firms would prefer to have the other type of loan. Rather than cancel their existing credit line(if this is possible, it may be expensive), the two firms can achieve the same effect by agreeing to “swap” cash flows

A currency swap is a foreign exchange agreement between two parties to exchange a given amount of one currency for another, and after a specified period of time, to give back the original amounts swapped. Currency swaps fulfill the same function in spreading the risk of exchange-rate fluctuations.

Checkpoint:

Suppose you become convinced an Internet stock is greatly overvalued at its current stock price, how might you use the derivates market to profit?