Book-Volume-1

Short Selling – Theory Questions

by R. Venkata Subramani

Theory Questions 1. What is short-selling and is it legal? 2. What are the different types of short sales? 3. Outline the process of short-selling. 4. Can an investor short a share without first arranging for the delivery of the shares? 5. What are the potential risks of short-selling? How does it compare with going [...]

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Short Selling – Summary

by R. Venkata Subramani

Short-selling is the practice of selling securities the seller does not own, in the hope of repurchasing them later at a lower price. This is done with the intention to profit from an expected decline in price of a security, as opposed to the ordinary investment practice in which an investor buys or goes long [...]

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Contract for Difference (CFD) – Journal Questions

by R. Venkata Subramani

Journal Questions CFD—Functional Currency US$ Stamford Fund had the following trades in Alcoa in the CFD market. The counterparty is Robinson & Co., which takes a margin of 10 percent of the value of the contract upfront. The funding cost of a long position is calculated at 2 percent per month for overnight carry of [...]

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Contract for Difference (CFD) – Objective Questions

by R. Venkata Subramani

Objective Questions 1. The striking difference on comparing CFD and futures is a. CFDs have no expiry date. b. CFDs are derivative contracts. c. CFDs are of a speculative nature. d. All of the above. 2. With CFDs, the investor can take a. A long position. b. A short position. c. Either a long or [...]

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Contract for Difference (CFD) – Theory Questions

by R. Venkata Subramani

Theory Questions 1. Define a CFD contract and explain how it is different from a futures contract. 2. What are the salient product features of CFD? 3. Is short-selling possible with CFDs, and if so are there any advantages? 4. How is the funding cost computed for a CFD contract? 5. What are the margin [...]

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Contract for Difference (CFD) – Summary

by R. Venkata Subramani

A contract for difference is a contract between two parties, buyer and seller, stipulating that the seller will pay to the buyer the difference between the current value of an underlying equity share and its value at contract time. However, if the difference is negative, then the buyer pays to the seller such difference. A [...]

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Hedge Accounting – Journal Questions

by R. Venkata Subramani

Journal Questions For the following scenarios, prepare journal entries, general ledgers, trial balance, income statement, and balance sheet. Put Option as a Hedge—Trade Currency SGD Konark Fund had the following trades of Lever shares in the Options market through Silver Man brokers. The stock exchange requires that the writer of the options maintain 10 percent [...]

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Hedge Accounting – Objective Questions

by R. Venkata Subramani

Objective Questions 1. FAS 133 prescribes accounting requirements for a. Derivative instruments for hedging activities. b. Debt and equity securities. c. Fair value measurement. d. All of the above. 2. Characteristics of a financial derivative instrument include which of the following? a. Value of the instrument changes in response to underlying. b. It requires no [...]

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Hedge Accounting – Theory Questions

by R. Venkata Subramani

Theory Questions 1. Define a derivative instrument as per U.S. GAAP and as per IFRS. 2. What combination of underlying shares and options is permissible in hedge accounting? 3. Can options that are written qualify for hedge accounting? 4. Accounting standards do not permit hedge accounting for covered calls. What are the reasons for this [...]

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Hedge Accounting – Summary

by R. Venkata Subramani

The accounting treatment of call options prima facie will depend upon the intention with which the options are purchased: for hedging or speculation (nonhedging). If the position is taken as a hedge against some other position, then the relevant accounting standards will be applicable and there are certain conditions that are to be fulfilled for [...]

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