Define long position in future contract and options contract, Financial Management

Assignment Help:

What is the major difference in the obligation of one with a long position in a futures (or forward) contract in comparison to an options contract?

Answer: A futures or forward contract is a vehicle for selling or buying a stated amount of foreign exchange at a stated price per unit at a fixed time in the future. Determine that if the long holds the contract to the delivery date, he pays the effectual contractual futures (or forward) price, consider whether it is an advantageous price in comparison to the spot price at the delivery date.  By difference, an option is a contract providing the long the right to buy or sell a fixed quantity of an asset at a specified price at some time in the future, although not enforcing any obligation on him if the spot price is much more favorable as compared to the exercise price.  Since the option owner does not have to exercise the option if it is to his disadvantage, the option has a price, or premium, while no price is paid at inception to enter into a futures (or forward) contract.


Related Discussions:- Define long position in future contract and options contract

Disadvantage or redundancy of excessive working capital, Q. Disadvantage or...

Q. Disadvantage or redundancy of excessive working capital? Excessive working capital means idle funds which earns no profit for the business operation it should have nighters

Capital structure theory, Capital structure theory: Use the following ...

Capital structure theory: Use the following information to answer the questions: Case I: Capital structure theory ( no tax ) Case II: Capital struct

Explain trade credit is free credit, Trade credit is free credit.  Do you a...

Trade credit is free credit.  Do you agree or disagree with this statement?  Explain. No the Trade credit is not free.  It comprises a cost.  Who bears that cost relies on the te

Determine the advantages of explicit cost, Determine the advantages of expl...

Determine the advantages of explicit cost Explicit cost of an interest bearing debt will be the discount rate which equates present value of the contractual future payments of

Optimal capital structure, (a) The calculation of the Weighted Average Cost...

(a) The calculation of the Weighted Average Cost of Capital (WACC) is theoretically easy but practically complex. Discuss. (b) Two-fifths of the total market value of Jefferson

Currency swap, How exchange of principal and interest in one currency? E...

How exchange of principal and interest in one currency? Expalin

Importance of gantt charts in project communication process, Due to the com...

Due to the complexity of the tasks involved in many projects, communication of responsibility for those tasks is often helped by means of graphical planning techniques.

Clearly explain speculation, QUESTION 1 Assuming perfect capital mobili...

QUESTION 1 Assuming perfect capital mobility under Mundell-Fleming Model, clearly explain the effectiveness of- i) an expansionary fiscal policy under a fixed exchange rate

Define finance function and discuss its nature, Q. Define Finance Function ...

Q. Define Finance Function and discuss its nature and scope Ans. Meaning of Finance: - Finance is defined as the provision of funds at the time when it is required. The role of

Price volatility characteristics of option-free bonds, As we know tha...

As we know that price of option-free bond changes in the opposite direction from a change in bond's required yield, Table 1 and figure 1 explains this feature of

Write Your Message!

Captcha
Free Assignment Quote

Assured A++ Grade

Get guaranteed satisfaction & time on delivery in every assignment order you paid with us! We ensure premium quality solution document along with free turntin report!

All rights reserved! Copyrights ©2019-2020 ExpertsMind IT Educational Pvt Ltd