(PDF) Financial Derivatives Use: A Literature Review
Added on 2021-01-02
10 Pages2689 Words291 Views
FinanceCalculus and Analysis
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FINANCIAL DERIVATIVESTRADING: OPTIONS, FUTURESAND SWAPS
TABLE OF CONTENTSINTRODUCTION...........................................................................................................................1PART A...........................................................................................................................................1PART B............................................................................................................................................4(A) Portfolio setup......................................................................................................................4(a) Quote of selected date: 19 June 2018....................................................................................4(b) Birth date: 4 June 1990..........................................................................................................5(B) Hedging.................................................................................................................................6Risk faced by fund managers and hedging with futures.............................................................6(b) Hedging.................................................................................................................................7CONCLUSION................................................................................................................................7REFERENCES................................................................................................................................8
INTRODUCTIONIn the present era, future markets are most essential as they help in cash flow of economy.In the present report, it has been discussed that how crude oil futures are used for managing riskby hedging and speculation. This report is based on article of FT.com which has entitled that 'Oilrises as US crude stocks retreat for third week' which has forecasted that oil market will beglobally cause deficit in second half of year if cartel has maintained production cuts. Further, ithas discussed about setting up of portfolio for FTSE 100 index and future. There are variousrisks which are faced by fund manager and ways for fund manager for hedging risk has beenelaborated here as well.PART AFuture markets are directly originated according to producers for stabilizing income onsupply of raw material along with fluctuations of market. It is elaborated as speculators forbetting on direction of commodity which is given (Miller, D., 2018). The prices of energy arevery important and oil crisis of 2015 has represented various important alterations in specialcommodities for investors and consumers. In the present era, there is something more than pricesof oil that is crude oil futures and it provides opportunity for earning margin according to cost ofbarrel of Brent crude or WTI (West Texas Intermediate), but there way of operation is unique.They don not buy stocks of oil and gas company physically. The buyers and sellers of oilcoordinate and agree for delivering particular amount of crude oil on specific duration which istermed as crude oil futures. West Texas Intermediate in US is considered as benchmark of futurecontract. It has traded on exchange of New York that is New York Mercantile exchange and ithas been globally traded and replicated as reason of Brent crude oil futures which consist ofvarious grade of oil that is founded in North Sea off European continent.The main objective of crude oil futures is to link with oil producers along with oilconsumers. Future contracts are sold by producers of oil so, accordingly current prices areeffectively locked. Each and every day prices of future have different alterations; if it goes downthen financial credit has been received by seller which is offsetting drop in price of oil market(Fabozzi, F. J. ed., 2018). Just a small example: Future contract decreases from $70 per barrel to$50 per barrel, then credit of $2000 will be received by seller and simultaneously to $20 which isdeclined and its product to 2000 barrel which is covered by contract. In case contract rises from1
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