Bonds are frequently purchased to fund future liabilities because of the relative certainty of the cash flows which are set contractually. However, the certainty as to the value of the terminal value of those future cash flows depends upon two factors:

the rate at which the future coupons can be reinvested remaining unchanged;

if the bond has a maturity longer than the desired holding period, the level of interest rates is the same at the beginning and end of the holding period. Read more »

Posted: June 17th, 2008 under Crude Oil Futures, Futures Options, Futures Prices, Futures Spreads, Short Futures, Silver Futures.
Comments: 6

Currency swaps, which were developed before interest rate swaps, were derivations of the 1970s practice of establishing parallel loans between two parties whereby, for example, company A would lend its domestic currency to company B, in return for a loan of company B’s domestic currency. These parallel loans were often used to manage exchange risk or to circumvent exchange control regulations.

This system of mutual lending had two serious drawbacks. First, there was no automatic off-set of the cash flows between parties. Thus, if company A defaulted on its loan from B, company B would still have to honour its commitment to A. Secondly, although the two loans effectively cancelled each other out, they were still shown on the balance sheets of each company. Read more »

Posted: June 14th, 2008 under Commodities Futures, Crude Oil Futures, Equity Futures, Future Exchange, Future Fund, Future Investing, Future Management, Future Trading, Futures Contracts, Managed Futures, Swap Futures.
Comments: 3

Direct Participation Programs

The next level up in size and complexity is direct participation programs, or DPPs. You may think of them as tax shelters or limited partnerships (LPs). They are constructed to pass through all of their income, gains, losses, and tax benefits to their owners. The partnership itself pays no taxes because the partners accept liability. Gas-oil exploration and real estate development are common LPs.

Unlike those big sisters, the commodity trading limited partnership is not a tax shelter. It is structured to provide limited liability to investors. The syndicator is the CTA or a CPO, and usually the general partner as well. These can be public or private. Private LPs are usually formed by a small group of wealthy investors, while public LPs attract large numbers of small ($2,000 to $5,000 minimum) investors. The latter requires a full-fledged prospectus and is more stringently watched by federal regulators. Both must be registered with the SEC. Read more »

Posted: March 2nd, 2008 under Corn Futures, Crude Oil Futures, Future Fund, Future Management, Future Trading, Futures, Futures Contracts, Futures Market, Futures Prices, Interest Rate Futures, Managed Futures, S&P Futures, Stock Market Futures, market.
Comments: 4

European Institutions

The preparedness of European institutions to purchase either managed derivatives funds or programmes varies across the continent and is dependent upon a series of factors some of which may be addressed by marketing.

1. The regulatory (and tax) environment;
2. general familiarity with the derivatives and managed derivatives industry;
3. familiarity with the fund management group attempting to sell product;
4. presence and format of a track record (at least for past funds if a new product is offered);
5. money under management within the fund group;
6. technical expertise within the fund group;
7. performance aspirations for the fund or investment programme;
8. quality and content of the explanatory/sales materials;
9. financial considerations such as fees implicit within the fund or programme.

Read more »

Posted: February 16th, 2008 under Foreign Exchange Futures, Future Fund, Futures Trading System, Oil Futures.
Comments: 5