Reference no: EM132459645

Derivatives and Risk Management

Question 1: What is a derivative security, and what do we mean when we say it is a zero sum game? How does this relate to concepts such as the underlying, synthetic securities, market completeness, and an arbitrage induced law of one price?

Question 2: How do concepts such as notional value, long-short, counter-party, and counter-party risk relate to the derivatives market?

Question 3: What is meant by liquidity in the markets and why is it important?

• Note that we discussed three functions of liquidity: 1. Risk transfer, 2. Price efficiency (i.e., market equilibrium), and 3. Market performance (i.e., counterparty risk and systemic risk)

Question 4: What is meant by the term "asset class" in derivative markets?

Question 5: What is meant by systemic risk as it relates to derivatives markets? How does systemic risk relate to counter-party risk in this context?

Question 6: What are exchange markets and OTC markets? What is the structure and function of each of these types of markets? How do these markets compare/contrast with respect to issues such as counter-party risk management, standardization of products, and regulation?

Question 7: What are the roles played by exchanges, clearing houses, clearing exchange members, and non-clearing exchange members in the structure of futures contract transactions?

Question 8: What are Globex and ClearPort on the CME? Likewise, how does ICE and ICE Clear Clear Credit create the same environment for ICE?

Question 9: What roles do the CFTC and the NFA play in the exchange traded derivatives markets?

Question 10: What is the ISDA? How does this relate to derivative markets here in the U.S.?

Question 11: What is an SRO? What are examples of SRO's and what role do they play in both exchange and OTC markets?

Question 12: What are cleared vs. non-cleared products with respect to the OTC markets? What are bespoke products on the OTC? What is a central clearing party (CCP) and how does it differ from bilateral clearing?

Question 13: What is a Credit Support Annex and how does this relate to bilateral OTC products?

Question 14: What is central clearing party (CCP)? How does the CCP function to allow exchanges (such as the ICE or CME) to participate in OTC markets. What is the role of a Swap Execution Facility (SEF) in these markets?

Question 15: What is Libor and what are Eurodollars? How do they relate to each other and what role do they play in the global markets for liquidity?

Question 16: What is SOFR and how is it structured? Why is SOFR replacing LIBOR in the global liquidity markets?

Question 17: What is the Fed Funds rate and how does it compare to Eurodollars? How does the Fed Funds rate compare to SOFR?

Question 18: How can a SOFR, Federal Funds, or Eurodollar futures contract be used to imply the SOF rate, the Fed Funds rate, or the Eurodollar rate? Describe the underlying vs. the actual futures contract in both of these cases.