ARM 56- Assignment 9
Exchange rate risk
Uncertainty about an investment's value because of potential changes in the exchange rate between currencies.
In a forward contract
the buyer and seller of a commodity know its price prior to delivery.
Forward contract
A contract that obligates one party to buy and another party to sell a specific financial instrument or physical commodity at a specified future date and price is a
Forward Contract
A contract that obligates one party to buy and another party to sell a specific financial instrument or physical commodity at a specified future date and price.
A Special Purpose Vehicle
A facility established for the purpose of purchasing income-producing assets from an organization, holding title to them and then using those assets to collateralize securities that will be sold to investors is a special purpose vehicle.
The payment to the seller in an option compensates the seller for
Accepting the risk that it will have to pay cash to the buyer if the value of the underlying asset exceeds the strike price on an exercised option.
Swaps
An agreement between two or more parties to exchange sets of cash flows over a period of time Interest swap and currency swap
Option Contract
An agreement to keep an offer open for a stated period, supported by consideration.
Put Option
An option giving the holder the right to sell a set amount of the underlying security at any time within a specified period.
Call option
An option to buy a set amount of the underlying security at any time within a specified period
Price Risk
The potential for a change in revenue or cost because of an increase or a decrease in the price of a product or an input.
Strike price
The price at which the stock or commodity underlying a call option (such as a warrant) or a put option can be purchased (called) or sold (put) during a specified period
Securitization
The process of creating a marketable investment security based on a financial transaction's expected cash flows.
Securitization
The process of creating a marketable investment security based on the expected cash flows from a financial transaction is securitization.
Interest rate risk
The risk that a security's future value will decline because of changes in interest rates.
Liquidity risk
The risk that an asset cannot be sold on short notice without incurring a loss
Credit Risk
The risk that customers or other creditors will fail to make promised payments as they come due
Market risk
Uncertainty about an investment's future value because of potential changes in the market for that type of investment
Call option benefits
They cap or provide a ceiling for interest rates by giving the holder the right to buy an asset- in some cases, this could be a lower interest rate.
