FIN306 Tutorial 6

1. What are derivative contracts? What is the value of derivative contracts to the managers of
FIs?

2. What has been the regulatory result of some of the misuses by FIs of derivative products?

3. What are some of the major differences between futures and forward contracts? How do
these contracts differ from a spot contract? Between futures and options contracts?

4. A forward market already existed, so why was it necessary to establish futures and options
contracts? Why would one use a interest rate swap instead of futures of options?

5. What is an option and what is the major disadvantage of forward and futures contracts
relative to options? Why would one use

6. What are the differences between a microhedge and a macrohedge for a FI? Why is it
generally more efficient for FIs to employ a macrohedge than a series of microhedges?

7. What are the reasons an FI may choose to hedge selectively its portfolio?