Chapter 13 Financial Futures Markets: provide a background on financial futures contracts, explain how interest rate futures contracts are used to speculate or hedge based on anticipated interest rate movements,. | 1 1 Part 5 Derivative Security Markets 2 ■ provide a background on financial futures contracts ■ explain how interest rate futures contracts are used to speculate or hedge based on anticipated interest rate movements ■ explain how stock index futures contracts are used to speculate or hedge based on anticipated stock price movements ■ explain how single stock futures are used to speculate on anticipated stock price movements ■ describe the different types of risk to which traders in financial futures contracts are exposed 13 Financial Futures Markets Chapter Objectives 3 3 Background on Financial Futures A financial futures contract is a standardized agreement to deliver or receive a specified amount of a specified financial instrument at a specified price and date. Financial futures contracts are traded on organized exchanges, which establish and enforce rules for such trading. The operations of financial futures exchanges are regulated by the Commodity Futures Trading Commission (CFTC). 4 4 4 Exhibit Stock Index Futures Contracts 5 5 Source: Republished with permission of Dow Jones & Company, Inc., from The Wall Street Journal, January 7, 2009, C9; permission conveyed through the Copyright Clearance Center, Inc. 5 Background on Financial Futures Purpose of Trading Financial Futures Financial futures are traded to speculate on prices of securities or to hedge existing exposure. Speculators in financial futures markets take positions to profit from expected changes in the futures prices. Day traders attempt to capitalize on price movements during a single day. Position traders maintain their futures positions for longer periods of time. Hedgers take positions in financial futures to reduce their exposure to future movements in interest rates or stock prices. 6 6 6 Background on Financial Futures Institutional Trading of Futures Contracts Financial institutions generally use futures contracts to reduce risk. Structure of the Futures Market Most financial . | 1 1 Part 5 Derivative Security Markets 2 ■ provide a background on financial futures contracts ■ explain how interest rate futures contracts are used to speculate or hedge based on anticipated interest rate movements ■ explain how stock index futures contracts are used to speculate or hedge based on anticipated stock price movements ■ explain how single stock futures are used to speculate on anticipated stock price movements ■ describe the different types of risk to which traders in financial futures contracts are exposed 13 Financial Futures Markets Chapter Objectives 3 3 Background on Financial Futures A financial futures contract is a standardized agreement to deliver or receive a specified amount of a specified financial instrument at a specified price and date. Financial futures contracts are traded on organized exchanges, which establish and enforce rules for such trading. The operations of financial futures exchanges are regulated by the Commodity Futures Trading Commission .
