Explain why the market insists on daily settlement

Solutions

Expert Solution

Why market insists on daily settlement

In future trading daily settlemet takes place which we also call mark to market which is when asset values are determined by market at the end of each day in order to arrive at the profit or loss status of the parties in a futures transaction.

So in a nutshell its a procedure conducted by the clearinghouse daily which determines the value for the asset covered by the futures contracts, known as the settlement price and then convert the paper gains and losses to actual gains and losses in the accounts of the parties involved.

So market insists on daily settlement as so that lossese should not get accumlated which ultimatly may create a problem in fulfillment of obligations contracts,daily settlement is like two betters settling their daily wins or losses amongst themselves before they could move forward for a new bet the next day on the same terms so in this losses can not get accumlated hence market insists on daily settlement.

jeff jeffy answered 1 year ago

Next > < Previous

Related Solutions

1. Differentiate between cash settlement and physical settlement with respect to futures market. 2. Briefly explain...

1. Differentiate between cash settlement and physical settlement with respect to futures market. 2. Briefly explain the concepts of margins, marking to market, and open interest in terms of futures market. 3. Compare and contrast forward markets and futures market. 4. Define a Swap. Explain briefly the role of swaps in the development of financial markets. 5. What is currency swap? Compare simple currency swap with comparative advantage currency swap.

One day, a long position in a futures contract sees gain from a daily settlement. Then,...

One day, a long position in a futures contract sees gain from a daily settlement. Then, a short position in the same contract sees loss from the daily settlement. Group of answer choices True False

Explain why an Interest Rate Swap (assume LIBOR as the floating rate) with quarterly settlement (assume...

Explain why an Interest Rate Swap (assume LIBOR as the floating rate) with quarterly settlement (assume 90 days per quarter) can be viewed as a strip of Eurodollar futures contracts. (Note: A strip is a sequence of ED futures with successive expirations) Note: This question is worth 10 marks.

Explain the approaches to be used to determine pile settlement.

Backtesting is usually conducted on a short horizon, such as daily frequency. Explain why?

What is the litigation and settlement process? and why settlements occur?

The daily market transactions for treasury instruments are in the billions. The current average daily volume...

The daily market transactions for treasury instruments are in the billions. The current average daily volume of “Treasuries” is approximately $150 billion. Like you, corporations may have extra cash to invest. In this case, you, as a finance manager, are considering investing $50,000 in either a Treasury bill that you will renew every 6 months or investing in a 5-year Treasury note that you will hold until maturity. Current interest rates are expected to increase. Would you invest in the...

Explain the concepts of the housing market as a continuum, and explain why a subsidy at...

Explain the concepts of the housing market as a continuum, and explain why a subsidy at the low end of the market will have an impact on the high end of the market?

Ms. Client lost big in the stock market during 2019. Now, at tax time, she insists...

Ms. Client lost big in the stock market during 2019. Now, at tax time, she insists that she is (or was during 2019) a day trader and therefore can treat her stock market net loss as a Schedule C ordinary loss rather than as a basically worthless net capital loss. In anticipation of a meeting with Ms. Client, prepare a due diligence checklist / questionnaire (or just a “note to self”) to guide the discussion and to help you get...

Please explain in brief. 1. Why is the market for healthcare not like the market for...

Please explain in brief. 1. Why is the market for healthcare not like the market for Starbucks coffee? 2. Provide three characteristics that prevent health care markets from allocating resources efficiently? 3. What is Market failure?

Subjects