FUTURES & DERIVATIVES

/GROUP 4/
GROUP 4
1. Phùng Hà Trân
2. Bùi Nguyễn Phương Trang
3. Lê Thị Tường Vi
4. Nguyễn Thị Mỹ Trân
5. Phan Thị Phương Thùy
6. Nguyễn Thị Thùy Trinh
7. Nguyễn Thị Ngọc Trâm
1a. Matching
A futures contract is the obligation
to sell or buy an asset at a later date
at an agreed-upon price. Futures
contracts are a true hedge investment
and are most understandable when
considered in terms of commodities

An options contract gives an

investor the right, but not the
obligation, to buy (or sell) shares at a
specific price at anytime, as long as
the contract is in effect
A derivative is a financial security with a value that
is reliant upon or derived from, an underlying asset
or group of assets
A hedge is an investment that protects your
finances from a risky situation. Hedging is done to
minimize or offset the chance that your assets will
lose value.
Speculation refers to the act of conducting a
financial transaction that has substantial risk of
losing value but also holds the expectation of a
significant gain or other major value
1b. Reading
Select ten or eleven of the following words that you would expect to
find in an introductory text about futures and options:

assets beer bush call commodities

contracts copper currencies discount
discount store foodstuffs hedge liabilities plastic
phone raw materials shout spot market
supermarket tea
1c. Summarize

1. The difference between futures

and forward contracts is...
The difference between futures and forward contracts is
that the futures are structured deals for predefined
quantities and time limits, while forward contracts are
individual and non-standard
2. Producers and buyers often choose to hedge because...
-> Because they want to guaranty the price of the next season
Premium is a situation in which the forward or expected
future price for a currency is greater than the spot price
Discount denotes a condition in which the forward or
expected future price for a currency is less than the spot
price
Spot price is the current market price at which an asset is
bought or sold for immediate payment and delivery
3.Speculators can make money on
currency futures if...
They foresee currency appreciation or depreciation
or interest rate fluctuations
4. If you believe that a share price will rise,
possible option strategies include...
→ Buying a call option or buying and reselling the share
at a profit.
A call option is an offer to
buy a stock at the strike
price before the agreement
expires.
A put option is an offer to
sell a stock at a specific
price.
5. On the contrary, if you think a
share price will fall, possible option
strategies include...
→ Obtaining a put option or buying and reselling it
at a profit
6. The risk with currency and interest
rate swaps is...
→ The swings in the exchange rate
Swap is a derivative contract through which two
parties exchange the cash flows or liabilities from two
different financial instruments.
Businesses or individuals attempt to secure cost-
effective loans but their selected markets may not offer
preferred loan solutions. For instance, an investor may
get a cheaper loan in a floating rate market, but he
prefers a fixed rate. Interest rate swaps enable the
investor to switch the cash flows, as desired
1d. Vocabulary

Appreciation - depreciation
Call - put
Discount - premium
Drought - flood
Floating - fixed
Hedging - speculating
Spot market - future market
Strike price – market price
*strike price or exercise price
EXERCISE 1
A: Decide whether the
following statements
are True or False
1. The price of a futures contract is determined
at the moment the contract is made.

=> True
2. Hedging is another name for speculating.
=> False
3. Futures prices are always higher than spot prices,
because they contain interest charges.
=> True
4. In options, “call” means “buy” and “put” means
“sell”.
=> True
5. The amount of money one can make or lose on
an options contract is determined at the moment
the contract is made.
=> False
6. You can sell an option to sell an asset you do not
actually possess.
=> True
 7. If you think a share will rise, you can profit by buying a call
option or writing a put option giving someone else the right to sell
the shares at the current price.
=> True
 8. It you think the value of a share you own will fall below its
current price, you can profitably buy a call option at this price
(or higher) or write a put option
=> False
9. A put option has intrinsic value if its exercise price is above
the current market price of the underlying share.
=> True
10. A call option with an exercise price below the underlying
share’s current, market price is “out-of-money”.

=> False
B: Match up the following words
(using them more than once if
necessary) to make up
at least ten two -word nouns
 B: Match up the following words (using them more than once if
necessary) to make up at least ten two-word nouns:

Call Contract Financial Forward Futures

Instrument Market Materials Option Price

Primary Product Raw Spot Strike

Call option Market price
Futures contract Primary product
Financial Instrument Strike price
Futures market Forward contract
Spot market Spot contract
Raw materials Spot price
Put option
1.Call option >< put option
Evidence: paragraph 3

2.Discount >< premium

Evidence: paragraph 2
3. Drought >< flood

4. Exercise price >< market price

Exercise price is price in an option contract.

5. Futures market >< spot market

Spot market is the current market at the time of a contract signed

6. Hedging >< speculation

Speculation involves trying to make a profit from a security's price
change, whereas hedging attempts to reduce the amount of risk, or
volatility, associated with a security's price change
7. in-the-money >< out-of-the-money

in-the-money at-the-money out-of-the-money

an option (right to buy or sell
shares, etc.) which has value
because shares, etc. can be
bought for less than their present
price, or sold for more than their
present price at the time the option
is used
Evidence: the last
paragraph
an option (right to buy or
sell shares, etc.) that has no
value because shares can
be bought or sold at their
present price:
an option (right to buy or sell shares,
etc.) which has no value because the
shares, etc. can be only be bought
for above their present price, or sold
for less than their present price:

8. Right >< obligation

Derivatives
Lead in

Do you know what the main types of derivatives are?

=>The main types of derivatives are futures, options, swaps
Evidence: line 4, paragraph 1

What are the two mains uses of derivatives?

=> two mains uses of derivatives are hedging and speculation.
Evidence: the last line, paragraph 3
Find words and phrases in the text to complete the sentences

1. A __________ ___________ is contract giving the possibility to sell a

specified quantity of securities, foreign exchange or commodities in the
future, if it is advantageous to do so.
Answer: put option

Evidence: Line 3, paragraph 3

2.______________ are raw materials such as agricultural products and
metals that are traded on special exchanges.

Answer: commodities
Evidence: paragraph 1, exercise 1
Reading 1: Derivatives

Find words and phrases in the text to complete the sentences:

1. A put option is contract giving the possibility to sell a
specified quantity of securities, foreign exchange or
commodities in the future, if it is advantageous to do so.
2. Commodities are raw materials such as agricultural products
and metals that are traded on special exchanges.
3. Futures are forward contracts for the purchase and sale of
securities, precious metals, etc…, at a fix price.
4. A call option is a contract giving the buyer the right, but not
the obligation, to buy an asset in the future.
5. If you hedge you make transactions that are designed to
reduce risk regarding a particular price, interest rate or
exchange rate.
6. An interest rate swap is an exchange of future payments on
borrowed money according to specified terms.
7. If you exercise an option you use or implement the
option, taking up the possibility to buy or sell something.
8. A speculator anticipates future changes in a market
and makes risky transactions, hoping to make a gain.
9. A premium is the money the writer of an option
receives.
Reading 1: Derivatives

Find words and phrases in the text to complete the sentences:

1. A put option is contract giving the possibility to sell a specified
quantity of securities, foreign exchange or commodities in the future,
if it is advantageous to do so.
2. Commodities are raw materials such as agricultural products and
metals that are traded on special exchanges.
3. Futures are forward contracts for the purchase and sale of securities,
precious metals, etc…, at a fix price.
( m làm cho hiện lên từng câu rồi đáp án của nó giúp t nha)
4. A call option is a contract giving the buyer the right, but not
the obligation, to buy an asset in the future.
5. If you hedge you make transactions that are designed to
reduce risk regarding a particular price, interest rate or
exchange rate.
6. An interest rate swap is an exchange of future payments on
borrowed money according to specified terms.
7. If you exercise an option you use or implement the option,
taking up the possibility to buy or sell something.
8. A speculator anticipates future changes in a market and
makes risky transactions, hoping to make a gain.
9. A premium is the money the writer of an option receives.
Use a word or phrase from each box to make word combinations from
the text. You can use some words more than once.

determine interest payments

eliminate options
exercise prices
guarantee risks
reduce uncertainty
swap
Use some of the word combinations to complete these sentences below

1. Companies with fixed and floating loans can choose to swap

interest payments.
2. Futures contracts allow you to eliminate short-term
uncertainty.
3. Hedging is the attempt to reduce risks ; speculating is the
opposite.
4. If prices move the wrong way, the buyer of options do not
exercise them.
5. With futures, you can guarantee prices several months in
advance.
Use some of the word combinations to complete these sentences below

1. Companies with fixed and floating loans can choose to swap

interest payments.
2. Futures contracts allow you to eliminate short-term
uncertainty.
3. Hedging is the attempt to reduce risks ; speculating is the
opposite.
4. If prices move the wrong way, the buyer of options do not
exercise them.
5. With futures, you can guarantee prices several months in
advance.
READING: Options, In-the-money and
out-of-the-money, Warrants and Swap

A. Match the two parts of the sentences. Loot at A opposite to help you

1. The price of a derivate always

a. Future price changes
depends on
b. The right to buy something
2. Options can be used to hedge
c. The price of another
against
financial product
3. A call option gives its owner
d. The right to sell something
4. A put option gives its owner
1. c → The price of derivative always depends on the price of another
financial product.

Derivatives are financial products who value depends on - or is derived

from - another financial product, such as stock, a stock market index, or
interest rate payments

2. a → Options can be used to hedge against future price changes

Options are like futures except that they give the right — give the
possibility, but not the obligation — to buy or sell an asset in the future.
3. b → A call option give its owner the right to buy something

If you buy a call option it gives you the right to buy an asset for a specific
price, either at any time before the option ends or on a specific date

4. d → A put option give its owner the right to sell something

If you buy a put option, it gives you the right to sell an asset at a specific
price ...
 B. Choose the correct ending for the sentences

1. If you expect the price of a stock to rise, you can

A. Buy a call option
B. Sell a call option
C. Buy a put option
D. Sell a put option

If you expect the price of a stock to rise from 100 to 120, you can buy a
call option giving the right to buy the stock at 110
2. If you expect the price of a stock to fall, you can
A. Buy a call option
B. Sell a call option
C. Buy a put option
D. Sell a put option

Investors can buy put options to hedge against falls in the price
of stocks.
3. If an option is out-of-the-money it will
A. Be exercised
B. Not be exercised

If the stock price does not rise to 110, you will not exercise the option,
and the seller of the option will gain the premium. Your option will be out-
of-the-money, as the stock is trading at below the strike price or exercise
price of 110, the price stated in the option.
4. If an option is in-the-money the seller will
A. Lose money
B. Gain money

If, on the other hand, the stock price rises above 110, you are in-the-
money : you can exercise the option and you will gain the difference
between the current market price and 110

→ which means the writer (the seller) will lose money

5. The biggest risk is taken by
A. Writers of options
B. Buyers of options

If the market moves in an unexpected direction, the writers of

options can lose enormous amounts of money.
C. Complete the definitions

1. … are like call options, but with much longer time spans
→ Warrants

Some companies issue warrants which, like options, give the right, but not the
obligation, to buy stocks in the future at a particular price, probably higher than
the current market price. They are usually issued along with bonds, but they can
generally be detached from the bonds and traded separately. Unlike call
options, which last three, six or nine months, warrants have long maturities of up
to ten years.
C. Complete the definitions

2. …… ….. give the right to sell securities at a

fixed price within a specified period
→ Put options
C. Complete the definitions

3. … can be used to speculate on interest rate movements

→ Swap

Swap is an act of exchanging one thing for another. In financial

sector, swap is used when two parties agree to exchange one of
its interest rate for other’s
D. Complete these sentences

1. If your put option is out-of-the-money, the seller

will gain the ………….
→ premium
Premium:
- The additional amount it will cost to buy or sell a currency at a
given future day.
- It is also called as a fee that the writer of option receives from the
buyer
D. Complete these sentences

2. You only exercise a call option if the market price

is higher than the … …
→ strike/exercise price

Strike/exercise price: the price at which someone who has an

options contract can buy or sell the shares, etc… It is the price
stated in the option
D. Complete these sentences

3. If I expect a stock price to go up in the short

term, I buy ….. ….. instead of the stock

→ call options
D. Complete these sentences

4. If I expect a big company’s stock price to

go up in the long term, I sometimes buy
their…
→ warrants
D. Complete these sentences

5. We needed euros and had a lot of dollars

in the bank, so we did a … with a German
company which needed dollars
→ swap
FUTURES

A. Match the word in the box with the definitions below. Look at A opposite to help you.

Backwardation
the situation when the current price is higher than the
future price
A. Match the word in the box with the definitions below. Look at A opposite to help you.

Commodities

physical substance, such as food, fuel and metals,

that can be bought or sold with futures contracts
A. Match the word in the box with the definitions below. Look at A opposite to help you.

Over the counter

adjective describing a contract made between two

businesses, not using an exchange
A. Match the word in the box with the definitions below. Look at A opposite to help you.

Spot price

the price for the immediate purchase and delivery

of a commodity
A. Match the word in the box with the definitions below. Look at A opposite to help you.

To hedge

to protect yourself against loss

A. Match the word in the box with the definitions below. Look at A opposite to help you.

Forwards

contracts for non- standardized quantities or

time periods
A. Match the word in the box with the definitions below. Look at A opposite to help you.

Futures

contracts to buy or sell

standardized quantities
B. Complete the sentences using a word or phrase from each box. Look at A and B
opposite to help you.

1 .............. to charge a consistent price for their

products

→Commodity futures allow

B. Complete the sentences using a word or phrase from each box. Look at A and B
opposite to help you.

2.......................... to be sure of the rate they will

get on bonds which could be issued at a different
rate in the future
→ Interest rate futures allow
B. Complete the sentences using a word or phrase from each box. Look at A and B
opposite to help you.

3.......................... to know at what price they can

borrow money to finance new projects
→ Interest rate futures allow
B. Complete the sentences using a word or phrase from each box. Look at A and B
opposite to help you.

4.......................... to make plans knowing what

price they will get for their crops
→ Commodity futures allow
B. Complete the sentences using a word or phrase from each box. Look at A and B
opposite to help you.

5.......................... to offer fixed lending rates

Interest rate futures allow
B. Complete the sentences using a word or phrase from each box. Look at A and B
opposite to help you.

6.......................... to remove exchange rate risks

from future international purchases
→ Currency futures allow
C. Are the following statements true or false? Find reasons for your
answer in B opposite.

1. Financial futures were created because exchange

rates, interest rates and stock prices all regularly change.
→T
Currencies, interest rates, stocks and stock market indexes
fluctuate, so financial futures are used to fix a value for a specified
future date
C. Are the following statements true or false? Find reasons for your
answer in B opposite.

2. Interest rate futures are related to stocks and

shares.
→F
Interest rate futures are agreements to issue bonds, certificates of
deposit, money market deposits, etc.
C. Are the following statements true or false? Find reasons for your
answer in B opposite.

3. Financial futures contracts allow companies to protect

themselves against short- term changes in exchange
rates.
→ T
Interest rate futures are agreements between banks and investors
and companies to issue fixed income securities at a future date
C. Are the following statements true or false? Find reasons for your
answer in B opposite.

4. You can only hedge if someone who expects a

price to move in the opposite direction is willing to
buy or sell a contract.
→ T
The buyer and seller of a financial future have different opinions
about what will happen to exchange rates, interest rates and
stock prices
C. Are the following statements true or false? Find reasons for your
answer in B opposite.

5. Both parties can make money out of the same futures

contract.
→ F
Futures trading is a zero-sum game, because the amount of
money gained by one party will be the same as the sum lost by
the other.
THANKS FOR
YOUR ALL
CONTRIBUTION!!!