| advance commitments | A promise to sell an asset before the seller has lined up purchase of the asset. This seller can offset risk by purchasing a futures contract to fix the sales price.
|
 |
|
|
| cash transaction | A transaction where exchange is immediate, as contrasted to a forward contract, which calls for future delivery of an asset at an agreed-upon price.
|
|
|
|
| deliverable instrument | The asset in a forward contract that will be delivered in the future at an agreed-upon price.
|
|
|
|
| duration | The weighted average time of an asset's cash flows. The weights are determined by present value factors.
|
|
|
|
| exotics | Very complicated contingent claims for derivatives.
|
|
|
|
| forward contract | An arrangement calling for future delivery of an asset at an agreed-upon price.
|
|
|
|
| futures contract | Obliges traders to purchase or sell an asset at an agreed-upon price on a specified future date. The long position is held by the trader who commits to purchase. The short position is held by the trader who commits to sell. Futures differ from forward contracts in their standardization, exchange trading, margin requirements, and daily settling (market to market).
|
|
|
|
| hedging | Taking a position in two or more securities that are negatively correlated (taking opposite trading positions) to reduce risk.
|
|
|
|
| immunized | Immune to interest-rate risk.
|
|
|
|
| long hedge | Protecting the future cost of a purchase by purchasing a futures contract to protect against changes in the price of an asset.
|
|
|
|
| making delivery | Refers to the seller's actually turning over to the buyer the asset agreed upon in a forward contract.
|
|
|
|
| marked to the market | Describes the daily settlement of obligations on futures positions.
|
|
|
|
| short hedge | Protecting the value of an asset held by selling a futures contract.
|
|
|
|
| speculating | Extremely high-risk investing.
|
|
|
|
| swaps | Exchange between two securities or currencies. One type of swap involves the sale (or purchase) of a foreign currency with a simultaneous agreement to repurchase (or sell) it.
|
|
|
|
| taking delivery | Refers to the buyer's actually assuming possession from the seller of the asset agreed upon in a forward contract.
|