Because of new information gathered on derivatives, it has become apparent that these instruments are capable of providing a good hedge mechanism for various currency transactions in which the firm will engage. Because of the potential importance of derivatives, the treasurer would like more information on futures contracts.
He needs you to provide explanations for the following questions:
What is the difference between a contango market and a backwardation market?
Define basis, and provide a real life example.
What ethical concerns need to be addressed when using derivative instruments?
Sample Solution
