Financial futures contracts and markets – finance – academic library – free online college e textbooks currency converter rmb to usd


It is even easier to describe what happens to the parties who have purchased futures contracts and those who have sold futures contracts if we recognize the following fact: At the expiration date of a futures contract, the price of the contract is the same as the price of the underlying asset to be delivered. Text editor windows 7 To see why this is the case, consider what happens on the expiration date of the June contract at the end of June when the price of the underlying $100,000 face value Treasury bond is 110 ($110,000). Usd price today If the futures contract is selling below 110—say, at 109—a trader can buy the contract for $109,000, take delivery of the bond, and immediately sell it for $110,000, thereby earning a quick profit of $1,000. Stock market futures cnn Because earning this

profit involves no risk, it is a great deal that everyone would like to get in on. Euro pound conversion rate That means that everyone will try to buy the contract, and as a result, its price will rise. Asian pre market futures Only when the price rises to 110 will the profit opportunity cease to exist and the buying pressure disappear. Binary to hexadecimal calculator Conversely, if the price of the futures contract is above 110—say, at 111—everyone will want to sell the contract. Futures definition stock market Now the sellers get $111,000 from selling the futures contract but have to pay only $110,000 for the Treasury bonds that they must deliver to the buyer of the contract, and the $1,000 difference is their profit. Binary compounds list Because this profit involves no risk, traders will continue to sell the futures contract until its price falls back down to 110, at which price there are no longer any profits to be made. Us market futures The elimination of riskless profit opportunities in the futures market is referred to as arbitrage, and it guarantees that the price of a futures contract at expiration equals the price of the underlying asset to be delivered.1

Armed with the fact that a futures contract at expiration equals the price of the underlying asset makes it even easier to see who profits and who loses from such a contract when interest rates change. Usd to cny exchange rate When interest rates have risen so that the price of the Treasury bond is 110 on the expiration day at the end of June, the June Treasury bond futures contract will also have a price of 110. Usd to korean won Thus, if you bought the contract for 115 in February, you have a loss of 5 points, or $5,000 (5% of $100,000). Usd to inr exchange rate history But if you sold the futures contract at 115 in February, the decline in price to 110 means that you have a profit of 5 points, or $5,000.