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What is a credit risk when entering into a derivative contract?
Credit Risk. Credit risk or default risk evolves from the possibility that one of the parties to a derivative contract will not satisfy its financial obligations under the derivative contract.
Advantages of operating in forward market?
Forward market allows the dealers to concentrate on their core line of business because they don't bother themselves with the risk of currency exchange. There is no premium paid upfront on forward contract as compared to futures and options.
Can you explain how a forward contract works in financial markets?
A forward contract is an agreement between two parties to buy or sell an asset at a future date for a set price. This allows them to lock in a price now, reducing the risk of price fluctuations. The contract is binding, meaning both parties must fulfill their obligations on the agreed-upon date.
Does a T-Bond have a default risk premium?
yes
What are the main terms of a first mortgage?
The Keywords or main terms of a first mortgage are "Mortgage", "Lender", "default", "liens", "property", "borrow", "collateral", "risk", "contract" and secondary words for the matter could be "Agent", "Money" and "banks".
What is a credit risk when entering into a derivative contract?
Credit Risk. Credit risk or default risk evolves from the possibility that one of the parties to a derivative contract will not satisfy its financial obligations under the derivative contract.
What strategy the Indian importer needs to follow to hedge the exchange risk?
it is better to go for forward contract
What are the advantages and disadvantages of forward contract?
Forward Contracts:Advantages- Can be written for any amount and term- Offers a complete hedgeDisadvantages- Difficult to find a counterparty (no liquidity)- Requires tying up capital- Subject to default riskFutures Contracts:Advantages- Lots of liquidity- Position can be reversed easily- Doesn't tie up much capitalDisadvantages- Written for fixed amounts and terms- Offers only a partial hedge- Subject to basis risk (bond issuer can default)
Advantages of operating in forward market?
Forward market allows the dealers to concentrate on their core line of business because they don't bother themselves with the risk of currency exchange. There is no premium paid upfront on forward contract as compared to futures and options.
Can you explain how a forward contract works in financial markets?
A forward contract is an agreement between two parties to buy or sell an asset at a future date for a set price. This allows them to lock in a price now, reducing the risk of price fluctuations. The contract is binding, meaning both parties must fulfill their obligations on the agreed-upon date.
What is forward premium How does the forward market help in reducing currency risk in international business?
The forward premium arises due to interest differentials between two currencies. In order that the two currencies have the same intrinsic values as they have today and avoid interest arbitrage, the premium/discount comes into effect.The forward rate includes the forwrd premium/discount and so the risk of spot market moving in the wrong way is minimised by entering into a forward contract.
Having contractor take accountability for the risk by using a firm-fixed price contract?
By using a firm-fixed price contract, the contractor is held accountable for any unforeseen risks or additional costs that may arise during the project. This type of contract specifies a set price that the contractor must adhere to, regardless of any fluctuations in the market or unexpected circumstances. It ensures that the contractor bears the responsibility for managing risk and delivers the project within the agreed-upon budget.
Does a T-Bond have a default risk premium?
yes
What kind of bond has the highest risk of default?
High-yield (junk) bonds have the highest risk of default. These bonds are issued by companies with lower credit ratings and are more likely to default compared to investment-grade bonds.
What is the purpose and significance of a simple indemnity clause in a contract?
An indemnity clause in a contract serves to protect one party from financial loss or liability that may arise from the actions or negligence of the other party. It is significant because it helps allocate risk and responsibility between the parties involved in the contract, providing clarity and protection in case of disputes or legal issues.
What is Interest rate on mortgage?
It will depend on the lender and the risk of default.
What are the main terms of a first mortgage?
The Keywords or main terms of a first mortgage are "Mortgage", "Lender", "default", "liens", "property", "borrow", "collateral", "risk", "contract" and secondary words for the matter could be "Agent", "Money" and "banks".
