Thị trường tài chính và các định chế tài chính_ Chapter 13

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Chapter 13
Financial Futures Markets
Financial Markets and Institutions, 7e, Jeff Madura
Copyright ©2006 by South-Western, a division of Thomson Learning. All rights reserved.
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Chapter Outline

Background on financial futures

Interpreting financial futures tables

Valuation of financial futures

Explaining price movements of bond
futures contracts

Speculating with interest rate futures

Closing out the futures position
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Chapter Outline (cont’d)

Hedging with interest rate futures

Bond index futures

Stock index futures

Single stock futures


Risk of trading futures contracts

Regulation in the futures markets

Institutional use of futures markets

Globalization of futures markets
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Background on Financial Futures

A financial futures contract is a standardized
agreement to deliver or receive a specified amount of a
specified financial instrument at a specified price and
date

The buyer of a futures buys the instrument while the seller
delivers the instrument

Futures are traded on organized exchanges

The exchanges clear, settle, and guarantee all transactions that
occur on the exchange

Futures are regulated by the Commodity Futures
Trading Commissions (CFTC)

Approves futures contracts and imposes regulations
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Background on Financial Futures

(cont’d)

Interest rate futures are on debt securities
such as T-bills, T-notes, T-bonds, and
Eurodollar CDs

Stock index futures are on stock indexes

Settlement dates are in March, June,
September, and December

Most financial futures are traded on the
Chicago Board of Trade or the Chicago
Mercantile Exchange
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Background on Financial Futures
(cont’d)

Purpose of trading financial futures

Traded either to speculate on prices of securities or to hedge
existing exposure to security price movements

Speculators take positions to profit from expected changes in
the price of futures contracts over time

Day traders attempt to capitalize on price movements during a
single day

Position traders maintain their futures positions for longer

periods of time

Hedgers take positions to reduce their exposure to future
movements in interest rates or stock prices
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Background on Financial Futures
(cont’d)

Electronic trading

The Chicago Mercantile Exchange established
GLOBEX that compliments its floor trading

Allows for around the clock and weekend trading

The Chicago Board Options Exchange implemented
a fully electronic futures exchange in 2004
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Background on Financial Futures
(cont’d)

Steps involved in trading futures

Members of a futures exchange are either:

Commission brokers, who execute orders for their
customers and are often employed by brokerage firms

Floor traders (locals), who trade futures contracts for their
own account


Many types of futures contracts now trade over the
counter

Are more personalized and can be tailored to the specific
preferences of the parties involved
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Background on Financial Futures
(cont’d)

Steps involved in trading futures (cont’d)

Customers must establish margin deposits with their brokers

Initial margin is typically between 5 and 18 percent of a futures’
full value

A futures contract price is “marked to market” daily

Customers may receive a margin call if the value moves in an
unfavorable direction

A market order is executed at the prevailing price of the futures
contract

A limit order is executed only if the price is within the limit
specified
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Background on Financial Futures
(cont’d)


Steps involved in trading futures (cont’d)

How orders are executed

Brokerage firms communicate customers’ order to
telephone stations located near the trading floor

Floor brokers accommodate orders

When two traders on the floor reach an agreement through
open outcry, the information is transmitted to the customers

Floor brokers receive transaction fees in the form of a bid-
ask spread

The futures exchange acts as a clearinghouse
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Interpreting Financial Futures
Tables

The Wall Street Journal provides a
comprehensive summary of trading activity on
various financial futures contracts

Example of Treasury bill futures quotations:
           
Discount
 
 

Open High Low Settle Change Settle Change Open
Sept 2005 93.80 94.05 93.80 94.05 +.28 5.95 –.28 2,519
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Characteristic of
Futures Contract
Treasury Bond Futures Treasury Note Futures
Size $100,000 face value $100,000 face value
Deliverable grade Treasury bonds maturing at least 15
years from date of delivery is not
callable; coupon rate is 8%
Treasury notes maturing at least
6.5 years but not more than 10
years from the first day of the
delivery month; coupon rate is
6%
Price quotation In points ($1,000) and thirty-seconds
of a point
In points ($1,000) and thirty-
seconds of a point
Minimum price
fluctuation
One thirty-second (1/32) of a point,
or $31.25 per contract
One thirty-second (1/32) of a
point, or $31.25 per contract
Daily trading limits Three points ($3,000) per contract
above or below the previous day’s
settlement price
Three points ($3,000) per
contract above or below the

previous day’s settlement price
Settlement months March, June, September, December March, June, September,
December
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Valuation of Financial Futures

The price of a financial futures contract generally reflects
the expected price of the underlying security as of the
settlement date

As the market price of the financial asset changes, so will the
value of the contract

Factors that influence the expected price of the asset influence
the futures’ price:

The current price of the asset

Economic or market conditions

Impact of the opportunity cost

Investors who buy stock index futures instead of the stock index
do not receive any dividends

Investors who buy stock index futures put up a much smaller
investment
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Explaining Price Movements of
Bond Futures Contracts


Participants in the Treasury bond futures market closely
monitor the same economic indicators monitored by
participants in the Treasury bond market:

Employment

GDP

Retail sales

Industrial production

Consumer confidence

Inflation indicators

Indicators that reflect the amount of long-term financing
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Speculating with Interest Rate
Futures

Involves trading T-bill futures

The position taken depends on interest rate
expectations

If interest rates are expected to decline, purchase T-bill futures

If interest rates are expected to increase, sell T-bill futures


The maximum possible loss when purchasing futures is
the amount to be paid for the securities
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Speculating with Interest Rate
Futures (cont’d)
0
0
Payoff from Purchasing Futures Payoff from Selling Futures
MV of Futures
at Settlement
MV of Futures
at Settlement
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Speculating on Increasing
Interest Rates
An investor anticipates that interest rates are going to
decrease. Consequently, she purchases a T-bill futures
contract for 94.20 in February. On the March settlement
date, the T-bill futures contract has a price of 94.70.
What is the investor’s nominal profit from this strategy?
000,5$000,942$000,947$Profit =−=