The main contents of this chapter include all of the following: Background on financial futures, interpreting financial futures tables, valuation of financial futures, explaining price movements of bond futures contracts, speculating with interest rate futures, closing out the futures position. | Chapter 13 Financial Futures Markets Financial Markets and Institutions, 7e, Jeff Madura Copyright ©2006 by South-Western, a division of Thomson Learning. All rights reserved. Chapter Outline Background on financial futures Interpreting financial futures tables Valuation of financial futures Explaining price movements of bond futures contracts Speculating with interest rate futures Closing out the futures position Chapter Outline (cont’d) Hedging with interest rate futures Bond index futures Stock index futures Single stock futures Risk of trading futures contracts Regulation in the futures markets Institutional use of futures markets Globalization of futures markets 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 The buyer of a futures buys the instrument while the seller delivers the instrument Futures are traded on organized exchanges The exchanges clear, settle, and guarantee all transactions that occur on the exchange Futures are regulated by the Commodity Futures Trading Commissions (CFTC) Approves futures contracts and imposes regulations Background on Financial Futures (cont’d) Interest rate futures are on debt securities such as T-bills, T-notes, T-bonds, and Eurodollar CDs Stock index futures are on stock indexes Settlement dates are in March, June, September, and December Most financial futures are traded on the Chicago Board of Trade or the Chicago Mercantile Exchange Background on Financial Futures (cont’d) Purpose of trading financial futures Traded either to speculate on prices of securities or to hedge existing exposure to security price movements Speculators take positions to profit from expected changes in the price of futures contracts over time Day traders attempt to capitalize on price movements during a single day Position traders maintain their futures positions for longer periods | Chapter 13 Financial Futures Markets Financial Markets and Institutions, 7e, Jeff Madura Copyright ©2006 by South-Western, a division of Thomson Learning. All rights reserved. Chapter Outline Background on financial futures Interpreting financial futures tables Valuation of financial futures Explaining price movements of bond futures contracts Speculating with interest rate futures Closing out the futures position Chapter Outline (cont’d) Hedging with interest rate futures Bond index futures Stock index futures Single stock futures Risk of trading futures contracts Regulation in the futures markets Institutional use of futures markets Globalization of futures markets 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 The buyer of a futures buys the instrument while the seller delivers the instrument Futures are traded on organized .
