Chapter 4. Introduction to Derivatives Practice Question set contains 23 pages covering the following learning objectives:
* Define derivatives, describe features and uses of derivatives, and compare linear and non-linear derivatives.
* Describe the over-the-counter market, distinguish it from trading on an exchange, and evaluate its advantages and disadvantages.
* Differentiate between options, forwards, and futures contracts.
* Identify and calculate option and forward contract payoffs.
* Differentiate among the broad categories of traders: hedgers, speculators, and arbitrageurs.
* Calculate and compare the payoffs from hedging strategies involving forward contracts and options.
* Calculate and compare the payoffs from speculative strategies involving futures and options.
* Calculate an arbitrage payoff and describe how arbitrage opportunities are temporary.
* Describe some of the risks that can arise from the use of derivatives.
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