This topic contains a solution. Click here to go to the answer

Author Question: What are derivatives and derivative markets? Explain with an ... (Read 144 times)

sc00by25

  • Hero Member
  • *****
  • Posts: 596
What are derivatives and derivative markets? Explain with an example.

Question 2

The greater the differentiation among the products of monopolistically competitive firms, the lesser is the price-elasticity of demand.
 a. True
  b. False
  Indicate whether the statement is true or false



Related Topics

Need homework help now?

Ask unlimited questions for free

Ask a Question
Marked as best answer by a Subject Expert

cegalasso

  • Sr. Member
  • ****
  • Posts: 295
Answer to Question 1

Derivatives are financial instruments whose value is derived from an underlying asset. People might enter into forward contracts that fix the price today for delivery of a good at some date in the future. The buyer of the forward contract is longcommitted to take deliveryand the seller is shortcommitted to deliver it. There is no requirement that the seller actually own the commodity or that the buyer have the necessary cash to pay for it when they make the original agreement. The value of future delivery in a forward contract depends on the market price of the commodity. (The commodity is usually called the underlying.) Because its value depends on the price of the underlying, the forward contract is an example of a derivative or a derivative asset. A futures contract is a standardized forward contract, traded on a futures exchange. Like a forward contract, it sets a price today for future delivery.

As an example, the New York Mercantile Exchange (NYMEX) contract in natural gas specifies its product not by volume but by its heat content. A contract is for 10 thousand million British thermal units (or 10,000 mmbtu, roughly 10 million cubic feet) of gas, to be delivered at the Henry Hub, a pipeline junction in southern Louisiana. It is to flow at as uniform a rate as possible over the month specified in the contract. Contracts are possible for deliveries in every month over the next six years. The contract is valuable to both producers and large consumers of gas as a hedge that lessens the risks associated with the highly unstable (volatile) spot price. The prime use of the gas contract is as a hedge, and fewer than three percent of such contracts go to delivery in most months. The remainder are settled in cash through the exchange, which acts as a counterparty for buyers and sellers to eliminate the risk of nonperformance.

Answer to Question 2

True




sc00by25

  • Member
  • Posts: 596
Reply 2 on: Jun 30, 2018
Thanks for the timely response, appreciate it


billybob123

  • Member
  • Posts: 336
Reply 3 on: Yesterday
Wow, this really help

 

Did you know?

To maintain good kidney function, you should drink at least 3 quarts of water daily. Water dilutes urine and helps prevent concentrations of salts and minerals that can lead to kidney stone formation. Chronic dehydration is a major contributor to the development of kidney stones.

Did you know?

Fungal nail infections account for up to 30% of all skin infections. They affect 5% of the general population—mostly people over the age of 70.

Did you know?

Anti-aging claims should not ever be believed. There is no supplement, medication, or any other substance that has been proven to slow or stop the aging process.

Did you know?

The first oncogene was discovered in 1970 and was termed SRC (pronounced "SARK").

Did you know?

More than 2,500 barbiturates have been synthesized. At the height of their popularity, about 50 were marketed for human use.

For a complete list of videos, visit our video library