Each student shall post information on an article that discusses a public corpor

Question

Each student shall post information on an article that discusses a public corporation and/or a financial manager's challenge relative to Chapters 22.  Please provide a link, copy or sufficient information that will describe the corporation’s situation. Also, be sure to reference your source and section in the book which your posting is based. Please give a brief analysis indicating your article’s connection to conceptual issues in Chapter 22.

Chapter 22:

The futures contract

trading mechanics

futures markets stratigies

futures prices

futures prices vrses expexred spot prices

Explanation / Answer

Future contract is one of the ways traders trade in stock market. This is agreement that a trader enters into on a futures price with the stock market.

A futures contract is a legal agreement, generally made in the trading market of exchange, to buy or sell any future product associated with stock market at a predetermined price at a specified time in the future. Futures contracts are standardized to facilitate trading on a futures exchange and, depending on the underlying asset being traded, detail the quality and quantity of the commodity.

Futures contracts are used by two categories of market participants: hedgers and speculators. Producers or purchasers of an underlying asset hedge or guarantee the price at which the commodity is sold or purchased, while portfolio managers or traders may also make a bet on the price movements of an underlying asset using futures.

Due to averaging of the futures due to its rates movements, trader can be more safe in trading when compared to other forms such as Options.

Trading mechanics:

In Future contract the asset is known in which we are trading for eg: we can buy a futures contract on gold, silver, crude many other items. The underlying item or commodity is described specifically in the contract specifications which are determined by the futures exchange on which it trades. The price of a futures is agreed upon initially between the buyer and seller, and remains fixed over the holding period, or length of the contract. Each participant in a futures contract is required to open a futures account for depositing margin. Margin is money deposited by both the buyer and the seller to assure the integrity of the contract. Finally, the full price of the commodity must be paid only upon contract expiration at which point the trader takes delivery, if the trader bought futures, or make delivery, if he sold futures, of the underlying commodity. Transactions in futures can only be done on futures exchanges.

futures markets stratigies:

futures contracts try to predict what the value of an index or commodity will be at some date in the future. Speculators in the futures market can use different strategies to take advantage of rising and declining prices. The most common are known as going long, going short and spreads.

When an investor goes long - that is, enters a contract by agreeing to buy and receive delivery of the underlying at a set price - it means that he or she is trying to profit from an anticipated future price increase.

A speculator who goes short - that is, enters into a futures contract by agreeing to sell and deliver the underlying at a set price - is looking to make a profit from declining price levels. By selling high now, the contract can be repurchased in the future at a lower price, thus generating a profit for the speculator.

Spreads involve taking advantage of the price difference between two different contracts of the same commodity. Spreading is considered to be one of the most conservative forms of trading in the futures market because it is much safer than the trading of long/short (naked) futures contracts.

futures prices:

The world trading market is highly competitive nature, the futures market is an important economic tool to determine prices based on today's and tomorrow's estimated amount of supply and demand. Futures market prices depend on a continuous flow of information from around the world and thus require a high amount of transparency. Factors such as weather, war, debt default, refugee displacement, land reclamation and deforestation can all have a major effect on supply and demand and, as a result, the present and future price of a commodity. This kind of information and the way people absorb it constantly changes the price of a commodity.

futures prices vrses expexred spot prices :

Both spot price and future prices are monitored while trading as this helps in avoiding losses.Both of them are explained briefly as below,

The spot price is the current market price at which an asset is bought or sold for immediate payment and delivery. It is differentiated from the forward price or the futures price, which are prices at which an asset can be bought or sold for delivery in the future.

This is a very strong trend that happens regardless of the contract's underlying asset. This convergence can be easily explained by arbitrage and the law of supply and demand. For example, suppose the futures contract for silver is priced higher than the spot price as time approaches the contract's month of delivery.

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