Futures are standardized contracts that require deferred delivery of an underlying asset at a specified price and date. Forwards are customized contracts negotiated over-the-counter. Forwards are useful when futures do not exist for a particular commodity or asset or when standard futures contracts do not match needs. Futures are traded on exchanges, have standardized terms, and parties are anonymous while forwards are traded over-the-counter, are customized, and parties are known to each other.
Used for MBA professional accounting class room presentation and it includes FASB rules and forex currency dealings details for purchase and sale of goods and services with foreign party.
This presentation broadly covers Mumbai University MMS Semester IV - Elective - Treasury Management.
It starts with History; factors leading to modern treasury management; main objectives; Integrated treasury; departments of treasury - Front, Middle and Back office.
www.abhijeetdeshmukh.com
Derivatives - Basics of Derivatives contract covered in this pptSundar B N
Derivatives - Basics of Derivatives including forward, futures, swap and options contracts which covers HISTORY OF DERIVATIVES, CHARACTERISTICS OF DERIVATIVES , FEATURES OF DERIVATIVES, FUNCTIONS OF DERIVATIVES MARKET, USES OF DERIVATIVES, DIFFERENCE BETWEEN SHARES AND DERIVATIVES SHARES DERIVATIVES, DEFINITION OF UNDERLYING ASSET, DERIVATIVES ADVANTAGES AND DISADVANTAGES, PARTICIPANTS/ TRADERS IN DERIVATIVES MARKET, SPECULATORS, ARBITRAGEURS, HEDGER
Subscribe to Vision Academy for Video assistance
https://www.youtube.com/channel/UCjzpit_cXjdnzER_165mIiw
As you may be aware, life expectancy of individuals has increased; which brings with it rise in medical and living costs during old age. Therefore, it is imperative to make provision for expenses wisely. All of us want to maintain our standard of living during our old age as well, but to do so we need to actually start thinking and planning for our retirement right from the beginning of our career when we are young. This ppt aims to help you understand how you can identify and establish your financial goals.
Considering that Interest Rate Volatility can be a major cause of concern for individuals, especially the ones who have availed floating rate credit, it is important for Financial Planners to understand the hedging mechanism, evaluate its suitability and be
able to advice their clients in accordance.
Used for MBA professional accounting class room presentation and it includes FASB rules and forex currency dealings details for purchase and sale of goods and services with foreign party.
This presentation broadly covers Mumbai University MMS Semester IV - Elective - Treasury Management.
It starts with History; factors leading to modern treasury management; main objectives; Integrated treasury; departments of treasury - Front, Middle and Back office.
www.abhijeetdeshmukh.com
Derivatives - Basics of Derivatives contract covered in this pptSundar B N
Derivatives - Basics of Derivatives including forward, futures, swap and options contracts which covers HISTORY OF DERIVATIVES, CHARACTERISTICS OF DERIVATIVES , FEATURES OF DERIVATIVES, FUNCTIONS OF DERIVATIVES MARKET, USES OF DERIVATIVES, DIFFERENCE BETWEEN SHARES AND DERIVATIVES SHARES DERIVATIVES, DEFINITION OF UNDERLYING ASSET, DERIVATIVES ADVANTAGES AND DISADVANTAGES, PARTICIPANTS/ TRADERS IN DERIVATIVES MARKET, SPECULATORS, ARBITRAGEURS, HEDGER
Subscribe to Vision Academy for Video assistance
https://www.youtube.com/channel/UCjzpit_cXjdnzER_165mIiw
As you may be aware, life expectancy of individuals has increased; which brings with it rise in medical and living costs during old age. Therefore, it is imperative to make provision for expenses wisely. All of us want to maintain our standard of living during our old age as well, but to do so we need to actually start thinking and planning for our retirement right from the beginning of our career when we are young. This ppt aims to help you understand how you can identify and establish your financial goals.
Considering that Interest Rate Volatility can be a major cause of concern for individuals, especially the ones who have availed floating rate credit, it is important for Financial Planners to understand the hedging mechanism, evaluate its suitability and be
able to advice their clients in accordance.
This workshop presented to staff in Sales and Analytics is an overview of the eurodollar futures contract. It focuses on the trading mechanics including some arbitrage and hedging samples and an in-depth study case on trading the TED spreads with details on the calculation and presentation of Bloomberg analytics.
Wayne lippman present s bonds and their valuationWayne Lippman
Bonds are simply long-term IOUs that represent claims against a firm’s assets.
Bonds are a form of debt
Bonds are often referred to as fixed-income investments.
Key Features of a Bond
Debt instrument issued by a corp. or government.
Par value = face amount of the bond, which is paid at maturity (assume $1,000).
Coupon rate – stated interest rate (generally fixed) paid by the issuer. Multiply by par to get dollar payment of interest.
BONDS, FEATURES OF BONDS, BOND VALUATION, MEASURING YIELD, ASSESSING RISK, TYPES OF LONG- TERM DEBT INSTRUMENTS, SERIAL BONDS, TYPES OF RISK, SEMI- ANNUAL BONDS, YIELD TO CALL, YIELD TO MATURITY, DEFAULT RISK & FACTORS AFFECTING DEFAULT RISK & BOND RATINGS, etc.
As a business owner in Delaware, staying on top of your tax obligations is paramount, especially with the annual deadline for Delaware Franchise Tax looming on March 1. One such obligation is the annual Delaware Franchise Tax, which serves as a crucial requirement for maintaining your company’s legal standing within the state. While the prospect of handling tax matters may seem daunting, rest assured that the process can be straightforward with the right guidance. In this comprehensive guide, we’ll walk you through the steps of filing your Delaware Franchise Tax and provide insights to help you navigate the process effectively.
Accpac to QuickBooks Conversion Navigating the Transition with Online Account...PaulBryant58
This article provides a comprehensive guide on how to
effectively manage the convert Accpac to QuickBooks , with a particular focus on utilizing online accounting services to streamline the process.
Premium MEAN Stack Development Solutions for Modern BusinessesSynapseIndia
Stay ahead of the curve with our premium MEAN Stack Development Solutions. Our expert developers utilize MongoDB, Express.js, AngularJS, and Node.js to create modern and responsive web applications. Trust us for cutting-edge solutions that drive your business growth and success.
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Cracking the Workplace Discipline Code Main.pptxWorkforce Group
Cultivating and maintaining discipline within teams is a critical differentiator for successful organisations.
Forward-thinking leaders and business managers understand the impact that discipline has on organisational success. A disciplined workforce operates with clarity, focus, and a shared understanding of expectations, ultimately driving better results, optimising productivity, and facilitating seamless collaboration.
Although discipline is not a one-size-fits-all approach, it can help create a work environment that encourages personal growth and accountability rather than solely relying on punitive measures.
In this deck, you will learn the significance of workplace discipline for organisational success. You’ll also learn
• Four (4) workplace discipline methods you should consider
• The best and most practical approach to implementing workplace discipline.
• Three (3) key tips to maintain a disciplined workplace.
Putting the SPARK into Virtual Training.pptxCynthia Clay
This 60-minute webinar, sponsored by Adobe, was delivered for the Training Mag Network. It explored the five elements of SPARK: Storytelling, Purpose, Action, Relationships, and Kudos. Knowing how to tell a well-structured story is key to building long-term memory. Stating a clear purpose that doesn't take away from the discovery learning process is critical. Ensuring that people move from theory to practical application is imperative. Creating strong social learning is the key to commitment and engagement. Validating and affirming participants' comments is the way to create a positive learning environment.
Taurus Zodiac Sign_ Personality Traits and Sign Dates.pptxmy Pandit
Explore the world of the Taurus zodiac sign. Learn about their stability, determination, and appreciation for beauty. Discover how Taureans' grounded nature and hardworking mindset define their unique personality.
Falcon stands out as a top-tier P2P Invoice Discounting platform in India, bridging esteemed blue-chip companies and eager investors. Our goal is to transform the investment landscape in India by establishing a comprehensive destination for borrowers and investors with diverse profiles and needs, all while minimizing risk. What sets Falcon apart is the elimination of intermediaries such as commercial banks and depository institutions, allowing investors to enjoy higher yields.
[Note: This is a partial preview. To download this presentation, visit:
https://www.oeconsulting.com.sg/training-presentations]
Sustainability has become an increasingly critical topic as the world recognizes the need to protect our planet and its resources for future generations. Sustainability means meeting our current needs without compromising the ability of future generations to meet theirs. It involves long-term planning and consideration of the consequences of our actions. The goal is to create strategies that ensure the long-term viability of People, Planet, and Profit.
Leading companies such as Nike, Toyota, and Siemens are prioritizing sustainable innovation in their business models, setting an example for others to follow. In this Sustainability training presentation, you will learn key concepts, principles, and practices of sustainability applicable across industries. This training aims to create awareness and educate employees, senior executives, consultants, and other key stakeholders, including investors, policymakers, and supply chain partners, on the importance and implementation of sustainability.
LEARNING OBJECTIVES
1. Develop a comprehensive understanding of the fundamental principles and concepts that form the foundation of sustainability within corporate environments.
2. Explore the sustainability implementation model, focusing on effective measures and reporting strategies to track and communicate sustainability efforts.
3. Identify and define best practices and critical success factors essential for achieving sustainability goals within organizations.
CONTENTS
1. Introduction and Key Concepts of Sustainability
2. Principles and Practices of Sustainability
3. Measures and Reporting in Sustainability
4. Sustainability Implementation & Best Practices
To download the complete presentation, visit: https://www.oeconsulting.com.sg/training-presentations
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RMD24 | Retail media: hoe zet je dit in als je geen AH of Unilever bent? Heid...BBPMedia1
Grote partijen zijn al een tijdje onderweg met retail media. Ondertussen worden in dit domein ook de kansen zichtbaar voor andere spelers in de markt. Maar met die kansen ontstaan ook vragen: Zelf retail media worden of erop adverteren? In welke fase van de funnel past het en hoe integreer je het in een mediaplan? Wat is nu precies het verschil met marketplaces en Programmatic ads? In dit half uur beslechten we de dilemma's en krijg je antwoorden op wanneer het voor jou tijd is om de volgende stap te zetten.
RMD24 | Retail media: hoe zet je dit in als je geen AH of Unilever bent? Heid...
Forward and future interest rate
1. Futures and Forwards
A future is a contract between two parties requiring
deferred delivery of underlying asset (at a contracted
price and date) or a final cash settlement. Both
parties are obligated to perform and fulfill the terms.
A customized futures contract is called a Forward
Contract.
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2. Cash Flows on Forwards
Pay-off Diagram:
Spot price of
underlying assets
Seller’s pay-offs
Buyer’s pay-
offs
Futures
Price
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3. Why Forwards?
They are customized contracts unlike Futures
and they are:
Tailor-made and more suited for certain purposes.
Useful when futures do not exist for commodities
and financials being considered.
Useful in cases futures’ standard may be different
from the actual.
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4. Futures & Forwards
Distinguished
FUTURES FORWARDS
They trade on exchanges Trade in OTC markets
Are standardized Are customized
Identity of counterparties is
irrelevant
Identity is relevant
Regulated Not regulated
Marked to market No marking to market
Easy to terminate Difficult to terminate
Less costly More costly
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5. Important Terms
Spot Markets: Where contracts for immediate delivery
are traded.
Forward or Futures markets: Where contracts for later
delivery are traded.
Both the above taken together constitute cash markets.
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6. Important Terms
Futures Series: All with same delivery month with same
underlying asset.
Front month and Back month.
Soonest to deliver or the nearby contract
Commodity futures vs. financial futures.
Cheapest to deliver instruments.
Offering lags.
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8. Interest Rate Futures
Two factors have led to growth:
Enormous growth in the market for fixed income
securities.
Increased volatility of interest rates.
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10. Hedging Interest Rate
Risk
A CFO needs to raise Rs.50 crores in February
20XX to fund a new investment in May 20XX, by
selling 30-year bonds. Hedge instrument
available is a 20-year, 8% Treasury -bond based
Future. Cash instrument has a PV01 of
0.096585, selling at par and yielding 9.75%. It
pays half-yearly coupons and has a yield beta of
0.45. Hedge instrument has a PV01 of 0.098891.
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11. Hedging Interest Rate
Risk
Hence, FVh = FVc × [PV01c / PV01h] × βy
= 50 × [0.096585 / 0.098891] × 0.45
= Rs.21.98 Crores
If FV of a single T-Bond Future is Rs.10,00,000
then, Number of Futures (Nf) = 21.98/0.1
= 219.8 Futures
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12. Hedging Interest Rate
Risk
If corporate yield rises by 80bp by the time of
actual offering, it has to pay 10.55% coupon
semi-annually to price it at par. Thus, it has to pay
Rs.50,00,00,000 × 0.0080 × 0.5 = Rs.20,00,000
more every six months in terms of increased
coupons.
This additional amount will have a PV at 10.55%
= 20,00,000 × PVIFA5.275%, 60
= Rs.3,61,79,720 ≅ Rs.3.618 Crores
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13. Hedging Interest Rate
Risk
Since corporate yield increases by 80bp, T-Bond
yield will increase by 178bp resulting in an
increased profit on short position in T-bond
futures
= 22,00,00,000 × 0.0178 × 0.5
= Rs.19,58,000 half yearly, which has a PV
= 19,58,000 × PVIFA4,89%,40
= Rs.3,41,09,729
= Rs.3.411 Crores
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14. Why Not perfect Hedge?
PV01 provides accurate and effective hedge for
small changes in yields.
PV01s of cash and hedge instruments change at
different rates.
PV01s need to be recalculated frequently
(practice is every 5bps). This can change the
residual risk profile.
Additional costs related to recalculations need to
be kept in mind.
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15. A Transaction on the Futures Exchange
.
Buyer Buyer’s
Broker
Futures
Exchange
3
Buyer’s Broker’s
Commission Broker
Futures
Clearing
House
Buyer’s Broker’s
Clearing Firm
Buyer’s Broker’s
Clearing Firm
Seller’s Broker’s
Commission Broker
Seller’s
Broker
Seller
1a 1b Buyer and seller instruct their respective brokers to conduct a futures transaction.
2a 2b Buyer’s and seller’s brokers request their firm’s commission brokers execute the transaction.
3 Both floor brokers meet in the pit on the floor of the futures exchange and agree on a price.
4 Information on the trade is reported to the clearinghouse.
5a 5b Both commission brokers report the price obtained to the buyer’s and seller’s brokers.
6a 6b Buyer’s and seller’s brokers report the price obtained to the buyer and seller.
7a 7b Buyer and seller deposit margin with their brokers.
8a 8b Buyer’s and seller’s brokers deposit margin with their clearing firms.
9a 9b Buyer’s and seller’s brokers’ clearing firms deposit premium and margin with clearinghouse.
1a
6a
7a
2a
5a
48a 8b
9a 9b
2b
5b
1b
6b
7b
Note: Either buyer
or seller (or both)
could be a floor
trader, eliminating
the broker and
commission
broker.
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16. Exchange Rate Risk
Hedging
Currency hedge is a direct hedge and not
a cross hedge as in case of interest rate
risk hedging. Hence, a hedge ratio of 1:1
works very well.
kanchan.kandel399@gmail.com
17. Forward Rate Agreements
(FRAs)
FRAs are a type of forward contract wherein
contracting parties agree on some interest rate to
be paid on a deposit to be received or made at a
later date.
The single cash settlement amount is determined
by the size of deposit (notional principal), agreed
upon contract rate of interest and value of the
reference rate prevailing on the settlement date.
Notional principal is not actually exchanged.
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18. Determination of
Settlement Amount
Step-1:Take the difference between contract rate and
the reference rate on the date of contract settlement
Step-2: Discount the sum obtained using reference rate
as rate of discount.
The resultant PV is the sum paid or received. The
reference rate could be LIBOR (most often used) or
any other well defined rate not easily manipulated.
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19. Hedging with FRAs
Party seeking protection from possible
increase in rates would buy FRAs (party is
called purchaser) and the one seeking
protection from decline would sell FRAs
(party is called seller).
These positions are opposite of those
employed while hedging in futures.
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20. Illustration
A bank in U.S. wants to lock-in an interest rate for
$5millions 6-month LIBOR-based lending that
commences in 3 months using a 3×9 FRA. At the time
6-month LIBOR (Spot Rate) is quoted at 8.25%. The
dealer offers 8.32% to commence in 3 months. U.S. bank
offers the client 8.82%. If at the end of 3 months, when
FRA is due to be settled, 6-month LIBOR is at 8.95%,
bank borrows at 8.95% in the Eurodollar market and
lends at 8.82%.
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22. Index Futures Contract
It is an obligation to deliver at settlement an
amount equal to ‘x’ times the difference
between the stock index value on expiration
date and the contracted value
On the last day of trading session the final
settlement price is set equal to the spot index
price
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23. Illustration (Margin and Settlement)
The settlement price of an index futures contract on a
particular day was 1100. The multiple associated is 150.
The maximum realistic change that can be expected is 50
points per day. Therefore, the initial margin is 50×150 =
Rs.7500. The maintenance margin is set at Rs.6000. The
settlement prices on day 1,2,3 and 4 are 1125, 1095,
1100 and 1140 respectively. Calculate mark-to-market
cash flows and daily closing balance in the account of
Investor who has gone long and the one who has gone
Short at 1100. Also calculate net profit/(loss) on each
contract.
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25. Pricing of Index Futures Contracts
Assuming that an investor buys a portfolio
consisting of stocks in the index, rupee
returns are:
RI = (IE – IC) + D, where
RI = Rupee returns on portfolio
IE = Index value on expiration
IC = Current index value
D = Dividend received during the
yearkanchan.kandel399@gmail.com
26. Pricing of Index Futures Contracts
If he invests in index futures and invests
the money in risk free asset, then
RIF = (FE – FC) + RF,
where
RIF = Rupee return on alternative investment
FE = Futures value on expiry
FC = Current futures value
RF = Return on risk-free investment
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27. Pricing of Index Futures Contracts
If investor is indifferent between the two
options, then
RI = RIF
i.e. (IE-IC) + D = (FE-FC) + RF
Since IE = FE
FC = IC + (RF – D)
(RF – D) is the ‘cost of carry’ or ‘basis’ and
the futures contract must be priced to
reflect ‘cost of carry’.
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28. Stock Index Arbitrage
When index futures price is out of sync with the
theoretical price, the an investor can earn
abnormal risk-less profits by trading
simultaneously in spot and futures market. This
process is called stock index arbitrage or basis
trading or program trading.
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29. Application of Index
Futures
In passive Portfolio Management:
An investor willing to invest Rs.1 crore can buy futures
contracts instead of a portfolio, which mimics the index.
Number of contracts (if Nifty is 5000)
= 1,00,00,000/5000 ×100 = 20 contracts
Advantages:
Periodic rebalancing will not be required.
Potential tracking errors can be avoided.
Transaction costs are less.
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30. Application of Index
Futures
In Beta Management:
In a bullish market beta should be high and in a
bearish market beta should be low i.e. market timing
and stock selection should be used.
Consider following portfolio and rising market forecast.
Equity : Rs.150 millions
Cash Equivalent : Rs.50 millions
Total : Rs.200 millions
Assume a beta of 0.8 and desired beta of 1.2
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31. Application of Index
Futures
The Beta can be raised by,
a. Selling low beta stocks and buying high beta stocks
and also maintain 3:1 ratio. Or,
b. Purchasing ‘X’ contracts in the following equation:
150 × 0.8 + 0.02 × X = 200 × 1.2
i.e. X = (200 × 1.2 – 150 × 0.8) / 0.02
= 6000 contracts, assuming
Nifty future available at
Rs.5000, multiple of 4 and
beta of contract as 1.0
No. of contracts will be 600 for a multiple of 40 and
240 for a multiple is 100.
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32. Euro-rate Differentials (Diffs)
Introduced on July 6, 1989 in US, it is a
futures contract tied to differential between
a 3-month non-dollar interest rate and
USD 3-month LIBOR and are cash settled.
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33. Euro-rate Differentials (Diffs)
Example: If USD 3-month LIBOR is 7.45 and
Euro 3-month LIBOR is 5.40 at the settlement
time, the diff would be priced at 100 – (7.45 –5.40)
= 97.95. Suppose in January, the March
Euro/dollar diff is prices at 97.60, this would
suggest that markets expects the differential
between USD LIBOR and Euro LIBOR to be
2.40% at settlement in March.
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34. Euro-rate Differentials (Diffs)
They are used for:
1. Locking in or unlocking interest rate differentials when
funding in one currency and investing in another.
2. Hedging exposures associated with non-dollar interest-rate
sensitivities.
3. Managing the residual risks associated with running a
currency swap book.
4. Managing risks associated with ever changing interest-rate
differentials for a currency dealer
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35. Foreign Exchange Agreements
(FXAs)
They allow the parties to hedge movements
in exchange rate differentials without
entering a conventional currency swap. At
the termination of the agreement, a single
payment is made by one counterparty to
another based on the direction and the
extent of movement in exchange rate differentials.
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