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Module 8 Intro to Derivative Securities
N/A
23
Finance
Not Applicable
05/19/2013

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Cards

Term
Definition of Derivative
Definition
"Financial Instrument that has value determined by the price of something else"
Term
Bid Price
Definition
The lower price which a market maker will buy stock for
Term
Long position
Definition
Buying a stock today and holding onto it
Term
Definition of a Forward Contract
Definition
A contract to buy or sell a specified asset at a designated price future time
Term
Three parts of a forward contract
Definition

underlying asset

expiration date

sale price

Term
Definition of spot price
Definition
The value of a forward contract at any time
Term
Long Forward
Definition
The buyer of a forward contract
Term
Short Forward
Definition
The seller of a forward contract
Term
Forward Price Formula
Definition
Spot(1+i)
Term
Payoff definition
Definition
The value of the financial result at expiration
Term

M 8-1

Derivative

Definition
A financial instrument that has value determined by the price of something else
Term

M 8-2

Diversifiable Risk

Definition
Risk that can be reduced by spreading the burden across a large number of investors
Term

M 8-3

Selling the Stock Short

Definition
Betting that a stock price will drop
Term

M 8-3

Magnitude of a Bid-Ask Spread

Definition
Ask Price > Bid Price
Term

M 8-3

The Ask Price is Sometimes Called

Definition
Offer Price
Term

M 8-3

Bid Price

Definition
A lower price which market makers buy stocks for
Term

M 8-3

Ask Price

Definition
The sell price for market makers
Term

M 8-3

Long Position in Stock

Definition
If you buy the stock today and hold onto it
Term

M 8-4

Short Rebate

Definition
Interest rate paid on collateral in the stock market
Term

M 8-4

Haircut

Definition
Additional cash a lender requires a short seller to put up if a lender percieves a serious risk that an asset will go up in value and cause a loss to short-seller
Term

M 8-4

Repo Rate

Definition
The interest rate paid on collateral in bond markets
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