ALL WORK MUST BE ORIGINAL AND NO PLAGIARISM. WORK REQUIRES IN TEXT CITATIONS AND RELIABLE REFERENCES FOR EACH QUESTION. ALSO EACH QUESTION MUST BE A MINIMUM OF TWO PARAGRAPHS
- Forwards, futures and options have been used by financial institutions for many years to hedge risk before swaps were invented. If a financial institution already had these hedging instruments, then why they need swaps? In your answer please include a discussion of the differences and similarities of: forwards, futures, options and swaps.
- How does using options differ from using forward or futures contracts, and what is the difference between options on foreign currency and options on foreign currency futures?
- Discuss the differences between economies of scale and economies of scope.
- How does the degree of liquidity risk differ for financial institutions, insurance companies and property casualty companies? What can these types of companies do to defend themselves against liquidity risk?
- What are the functions of GNMA, FHLMC and FNMA? How are they different and how are they the same? How is timing insurance used by these agencies? What has been the effect of securitization on the asset portfolio of these agencies and financial institutions?