Question

Discuss options and futures contracts. What common characteristics and differences do these financial instruments present?

What is it, what are the characteristics and what is the main function of Institutional Investors?

Describe the similarities and differences between "fixed capital" and "closed" mutual funds.

What is the difference between organized stock exchanges and over-the-counter sales markets?

What is a key fiscal characteristic related to state and local (Municipal) values?

Can you please include references?

Thank you

Answer 1

Ans:

1.Options: Option is a financial derivative that gives the buyer right to sell or buy the asset in a stated price with in a stipulated period. Option is of two types Call option and Put option. In call option, it gives the buyer right to buy it and in put option it gives the buyer right to sell it.

Characteristics of Option:

- Option contracts are easily traded in the exchange market which are flexible.

- We have to pay down payment for acquiring option contract which is otherwise called as premium.

-In option settlement is exercised only when option buyer or holder agrres to do that.

- Option holders have no obligation to buy or sell they have right to sell or buy.

Future Contract: Future contract is a legal financial instrument which to buy or sell a particular commodity or asset at pre determined price at a fixed future date.

Features of Future:

-Future contracts are traded in a organised exchange platform.

- The clearing house plays as medium at which future contract are traded at exchange.

- In future contract loss and gain arise in transaction almost have add no margin to contract price , as it is exercised in future date.

- Actual delivery in case of future contract is approximately less percentage.

- Standardised transaction takes place in exchange platform.

Difference:

• Option have no obligation but Future contract have both obligation and right to buy or sell.
• As compare to option an investor need more margin to trade in Future contract.
• In Option Risk is limited and in Future Risk in high.
• Execution of contract is at pre determined date for Future but in Option it is at any time during option period.

2. Institutional Investors:

An Institutional Investor is an legal entity which arrange or accumulate money in order to invest it in various financial instruments like, Real; estate property, buying securities and other investments etc.

Who are they? An institutional investor can be a bank, a credit union, a mutual fund manager, a insurance company,Pensions, Investment managers, Hedge fund etc.

It's Feature:

They manage functions and goal of clients accordingly. They are not mutual fund itself, they only manage fund and do analysis.

They act like professional to clients.

They only manage assets of funds by analysisng its interest and trend.

3: Fixed Capital:

Fixed capital are include in longterm finance. It means when you invest in fixed asset which have durability or long life in nature is called as fixed capital.

Example: Investment in machinery , issue oif equity share, real estate property. etc.

Closed Mutual Fund:

In close ended mutual fund a fixed numbers of units of underlying assets are provded to investor and traded in a stock market. It can give more return as compare to open endeed fund. They are also like function as exchange traded fund. It has more stability and highest flexibilty in terms of investment concerns. .

4: organized stock exchanges :

Organised stock exchange is where the exchange platform is widely organised and regulated by market. where stocks of various companies which listedon this platform are traded in a safe , transparrent and systematic manner. Traders and Buyers meet here.

Example; Bombay stock Exchange,National Stock exchange, Newyork Stock exchange. etc.

over-the-counter sales markets:

Over the Counter are decentralised dealer where buyer and seller transact directly by computer network and telecommunication .

Here Risk is more because most often stocks are thinly traded and make them iliquid.

5: state and local (Municipal) values:

Local value is called as munipal value . In terms of fiscal ground, A local tax is levied by municipal corporation of city local from the people to fund for its civic services. which is used for munipality develoment.municipal tax value.

State value: state imposes a tax on goods and services it provide to people for servive and in return it collects tax from them, State also make rule and change time to time to collect tax from public personal property.

References;

Moneycontrol.com

cfi.com