INTRODUCTION TO DERIVATIVES AND RISK
MANAGEMENT LEARNING WORKBOOK 2026
FUTURES OPTIONS AND HEDGING STRATEGIES
◉ financial risks. Answer: The risk associated with changes in such
factors as interest rates, stock prices, commodity prices, and
exchange rates.
◉ derivatives. Answer: A contract between two parties providing for
a payoff from one party to the other determined by the price of an
asset, an exchange rate, a commodity price, or an interest rate
◉ notional amount. Answer: A measure of the size of a swap or
derivative, stated in units of a currency, on which the payments are
calculated.
◉ Notional Principal. Answer: principal amount used to calculate
payments, not the amount actually invested or exchanged
◉ real assets. Answer: Tangible assets such as real estate or
equipment.
,◉ financial assets. Answer: Assets representing a claim of one party
on another.
◉ spot markets. Answer: The markets for assets that involve the
immediate sale and delivery of the asset.
◉ cash markets. Answer: another word for spot markets
◉ option. Answer: A contract granting the right to buy or sell an
asset, currency, or futures at a fixed price for a specific time period.
◉ call. Answer: An option to buy an asset, currency, or futures. Also
refers to the early retirement of a bond.
◉ put. Answer: An option to sell an asset, currency, or futures.
◉ forward contract. Answer: An agreement between two parties, a
buyer and a seller, to buy an asset or currency at a later date at a
fixed price.
◉ futures contract. Answer: An agreement between two parties, a
buyer and a seller, to purchase an asset or currency at a later date at
a fixed price and that trades on a futures exchange and is subject to a
, daily settlement procedure to guarantee to each party that claims
against the other party will be paid.
◉ futures markets. Answer: An organized exchange for trading
futures, which are subject to a daily settlement procedure.
◉ swap. Answer: A derivative transaction in which two parties agree
to exchange cash flows calculated according to different formulas.
See also Interest rate swap, Currency swap, Commodity swap, Equity
swap.
◉ risk neutral. Answer: The characteristic referring to an investor
who is indifferent toward risk.
◉ risk aversion. Answer: The characteristic referring to an investor
who dislikes risk and will not assume more risk without an
additional return.
◉ selling short. Answer: selling stock that has been borrowed from a
brokerage firm and must be replaced at a later date
◉ repurchase agreement. Answer: A securities transaction in which
an investor sells a security and promises to repurchase it a specified
number of days later at a higher price reflecting the prevailing
interest rate.
MANAGEMENT LEARNING WORKBOOK 2026
FUTURES OPTIONS AND HEDGING STRATEGIES
◉ financial risks. Answer: The risk associated with changes in such
factors as interest rates, stock prices, commodity prices, and
exchange rates.
◉ derivatives. Answer: A contract between two parties providing for
a payoff from one party to the other determined by the price of an
asset, an exchange rate, a commodity price, or an interest rate
◉ notional amount. Answer: A measure of the size of a swap or
derivative, stated in units of a currency, on which the payments are
calculated.
◉ Notional Principal. Answer: principal amount used to calculate
payments, not the amount actually invested or exchanged
◉ real assets. Answer: Tangible assets such as real estate or
equipment.
,◉ financial assets. Answer: Assets representing a claim of one party
on another.
◉ spot markets. Answer: The markets for assets that involve the
immediate sale and delivery of the asset.
◉ cash markets. Answer: another word for spot markets
◉ option. Answer: A contract granting the right to buy or sell an
asset, currency, or futures at a fixed price for a specific time period.
◉ call. Answer: An option to buy an asset, currency, or futures. Also
refers to the early retirement of a bond.
◉ put. Answer: An option to sell an asset, currency, or futures.
◉ forward contract. Answer: An agreement between two parties, a
buyer and a seller, to buy an asset or currency at a later date at a
fixed price.
◉ futures contract. Answer: An agreement between two parties, a
buyer and a seller, to purchase an asset or currency at a later date at
a fixed price and that trades on a futures exchange and is subject to a
, daily settlement procedure to guarantee to each party that claims
against the other party will be paid.
◉ futures markets. Answer: An organized exchange for trading
futures, which are subject to a daily settlement procedure.
◉ swap. Answer: A derivative transaction in which two parties agree
to exchange cash flows calculated according to different formulas.
See also Interest rate swap, Currency swap, Commodity swap, Equity
swap.
◉ risk neutral. Answer: The characteristic referring to an investor
who is indifferent toward risk.
◉ risk aversion. Answer: The characteristic referring to an investor
who dislikes risk and will not assume more risk without an
additional return.
◉ selling short. Answer: selling stock that has been borrowed from a
brokerage firm and must be replaced at a later date
◉ repurchase agreement. Answer: A securities transaction in which
an investor sells a security and promises to repurchase it a specified
number of days later at a higher price reflecting the prevailing
interest rate.
