1 / 15

Introduction to Financial Derivatives

Introduction to Financial Derivatives. Lecture #1 Jinho Bae March 6, 2008. Ch.1 Introduction to futures. Types of transactions Spot Forward Futures. Types of transactions. 1. Spot transaction

geoffrey-stewart
Download Presentation

Introduction to Financial Derivatives

An Image/Link below is provided (as is) to download presentation Download Policy: Content on the Website is provided to you AS IS for your information and personal use and may not be sold / licensed / shared on other websites without getting consent from its author. Content is provided to you AS IS for your information and personal use only. Download presentation by click this link. While downloading, if for some reason you are not able to download a presentation, the publisher may have deleted the file from their server. During download, if you can't get a presentation, the file might be deleted by the publisher.

E N D

Presentation Transcript

  1. Introduction to Financial Derivatives Lecture #1 Jinho Bae March 6, 2008

  2. Ch.1 Introduction to futures Types of transactions • Spot • Forward • Futures

  3. Types of transactions 1. Spot transaction • A transaction where the seller delivers a good to the buyer and the buyer pays the price immediately.

  4. e.g) Purchase of a fridge at Himart 1M won

  5. Question) If credit card rather than cash is used to pay, will it be a spot transaction? Fridge (now) Couple Hi-Mart 1M won (1 month later) 1M won (now) Hyundai card Answer)

  6. 2. Forward • An agreement to sell or buy an asset (good) at a certain time in the future for a certain price • At the time of agreement, both parties determine the time and the price. • No delivery or payment is made at the time of agreement. • Delivery and payment are made at the agreed-upon future date. • Also called forward contract.

  7. Today e.g.) An agreement to buy 100 heads of white cabbage in December for 1,000 won per head Contract • December 0.1M won

  8. Some characteristics of a forward contract • Buyer and seller must seek each other (sometimes time-consuming) • Various terms and conditions can be put in the contract - Quantity - Price - Delivery date • No guarantee of fulfillment of the contract

  9. 3. Futures • An agreement to sell or buy an asset at a certain time in the future for a certain price • Some characteristics of futures contract

  10. The exchange is the other side of futures contract • Case of buying buyer exchange Fulfillment of the contract is guaranteed • Case of selling seller exchange Fulfillment of the contract is guaranteed

  11. Cf) Two parties of forward transaction buyer seller

  12. Standardized terms and conditions • E.g.: Gold futures • Only Gold bar (99.99% pure) is traded • Contract size: 1Kg • Tick Size & Value : 10 won/g, representing a value of KRW 10,000

  13. Main differences between futures and forward

  14. Animation about futures • Korea Exchange: http://fm.krx.co.kr KRX info center/Cartoon Plaza KRX info center/Flash Plaza

  15. Gold bar

More Related