Question

Tom Curtis is the treasurer of the midsized corporation, Ricardo International. The firm manufactures various plastic components used in the computer hardware industry. When the firm opened up, it initially did business in the Midwest region of the United States but now sells its components to customers in other countries. Mr. Curtis requests that you report and discuss some issues relating to futures contracts, which might be used in the future by the firm to hedge currency risk and interest rate risk. Some of the issues he needs to know more about include the following:

• Identify possible benefits to the firm in using the futures markets
• The most important functions and importance of the clearinghouse
• How would you explain the concept of marked to market?

Describe regulatory responsibilities of the National Futures Association and the Commodity Futures Trading Commission and provide some historical background as to how and why the agencies were created.

Answer 1

| Answer A Sutures contract is a Saward contact that is standardized and exchange troded. Futures are traded in an active Secondary market, stabject to greater regulation. backed by deaving house and require a cash settlement of gains and losses I on daily unlike forward. fade trendo Sutures core the most recent instruments in the money markets and understanding these instruments can give provide a look into the market. Fed funds Litures allowes boutes, bined income peutfolio managers and orthers to hadge againt incorpected shidds in Shart forem orates in 1. The Pumany function of elearing house op to facilitate buyers and sellers tar trading sawities such as britures, option, moogin cs et Horeading and others. Hi8 becognised as a CamScar

cleaving house because it forsvites bünal Settlement of all otte transactions that are raised forom capital market. It's a government body which controls and standardises the process of dund movement in the market. . in the moorket. market-to - mcaket (M2r) is a concept of secogni ring an adjusting the book halue of securities to market value. when analiable for sale Securities are market - to - market, an asset account is adjusted to market, and an equity account is adjusted Cincarcases of decreases) based on the market value. Skanned with CamScanner