Mark-to-market and forward-futures price differences — Flashcards

9 flashcards

In Derivatives (Pricing of Futures Contracts), why might futures prices differ from forward prices in reality?

In Derivatives (Pricing of Futures Contracts), how does daily mark-to-market affect the price and value of a futures contract?

In Derivatives (Pricing of Futures Contracts), what is the formula for the Basis Point Value (BPV) of an interest rate futures contract?

In Derivatives (Pricing of Futures Contracts), what is the definition of the settlement price?

In Derivatives (Pricing of Futures Contracts), what happens to the price and value of a forward contract over its life?

In Derivatives (Pricing of Futures Contracts), what is "convexity bias" in the context of interest rate derivatives?

In Derivatives (Pricing of Futures Contracts), what is the "initial margin"?

In Derivatives (Pricing of Futures Contracts), what must an investor do if their futures margin balance falls below the maintenance margin?

In Derivatives (Pricing of Futures Contracts), under what condition will futures prices be higher than forward prices?

Mark-to-market and forward-futures price differences CFA Flashcards - Medical Study Cards

Master Mark-to-market and forward-futures price differences with Oncourse flashcards. These spaced repetition flashcards are designed for medical students preparing for NEET PG, USMLE Step 1, USMLE Step 2, MBBS exams, and other medical licensing examinations.

Mark-to-market and forward-futures price differences Flashcard Deck - 9 Cards

Flashcard 1: In Derivatives (Pricing of Futures Contracts), why might futures prices differ from forward prices in reality?

Answer: Because futures contracts are subject to daily mark-to-market settlement, whereas forwards settle only at expiration.

Flashcard 2: In Derivatives (Pricing of Futures Contracts), how does daily mark-to-market affect the price and value of a futures contract?

Answer: The futures price is adjusted to the daily settlement price, and the contract's value is returned to zero as gains and losses are settled daily.

Flashcard 3: In Derivatives (Pricing of Futures Contracts), what is the formula for the Basis Point Value (BPV) of an interest rate futures contract?

Answer: \[BPV = \text{notional principal} \times \text{period} \times 0.01\%\]

Flashcard 4: In Derivatives (Pricing of Futures Contracts), what is the definition of the settlement price?

Answer: An average of the prices of the trades during the last period of trading, called the closing period, which is determined by the exchange.

Flashcard 5: In Derivatives (Pricing of Futures Contracts), what happens to the price and value of a forward contract over its life?

Answer: The forward price remains constant, but the value of the contract fluctuates with changes in the underlying asset's value.

Flashcard 6: In Derivatives (Pricing of Futures Contracts), what is "convexity bias" in the context of interest rate derivatives?

Answer: The phenomenon where the value of a forward contract exhibits convexity (rising more when rates fall than dropping when rates rise), causing forward rates and futures prices to differ significantly for longer-term interest rates.

Flashcard 7: In Derivatives (Pricing of Futures Contracts), what is the "initial margin"?

Answer: The amount of cash or collateral that must be deposited in a futures account before a trade may be made.

Flashcard 8: In Derivatives (Pricing of Futures Contracts), what must an investor do if their futures margin balance falls below the maintenance margin?

Answer: The account holder must deposit additional funds to bring the margin balance back up to the initial margin amount, or the exchange will close out the position.

Flashcard 9: In Derivatives (Pricing of Futures Contracts), under what condition will futures prices be higher than forward prices?

Answer: If interest rates are positively correlated with futures prices, because daily settlement gains can be reinvested at higher rates.

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Mark-to-market and forward-futures price differences Flashcards for CFA

Study 9 flashcards on Mark-to-market and forward-futures price differences for CFA Derivatives and Risk Management (Level I). These active recall cards cover the key concepts, clinical associations, and high-yield facts from this chapter of Pricing and Valuation of Futures Contracts. Each card is designed to test your understanding rather than just recognition, building stronger and more durable memories for exam day.

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There are 9 flashcards for Mark-to-market and forward-futures price differences, covering the key concepts, clinical correlations, and high-yield facts from this chapter of Pricing and Valuation of Futures Contracts.

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Read through each prompt and try to answer before revealing the back of the card. This active recall approach builds stronger memories than passive reading. Combine flashcards with the study notes and MCQ practice for the best results.

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Yes. This page covers one chapter of Pricing and Valuation of Futures Contracts. Visit the topic page to see all chapters and their flashcards under Derivatives and Risk Management (Level I).

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