Some analysts compare the initial margin on a futures contract to a down payment. Some label it a performance bond. What is the difference between these interpretations?
Answer to relevant QuestionsSuppose that you are a speculator who trades three- month Eurodollar futures. On November 5, you sell two December three- month Eurodollar futures contracts at 96.81. The subsequent weekly quotes for the closing December ...A bank that hedges with financial futures cannot completely eliminate interest rate risk. Explain what basis risk is and why it exists. Is it ever possible to eliminate basis risk? What is the difference between a correspondent, respondent, and bankers’ bank? Explain why the Federal Reserve extended discount window loans to Goldman Sachs, American Express, Citigroup, Bank of America, and other large banking organizations during the recent financial crisis. Assume that a bank expects to access each of the following sources of funds in the event of an unanticipated liquidity need. In what situations might the counterparty not supply the promised funding? a. $ 5 million federal ...
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