DES ES Shading Border Styles (6) Explain what is meant by 'gearing returns with reference to this example. (Hint: gearing has the same meaning as leverage, note how the returns in the Imaginationum are amplified in the futures contract and comment on it.) (75 words max) (C) Forwards and futures differ in many ways. Forwards are traded over the counter, whereas futures are traded on the stock exchange. Forward contracts concertize the negotiation process by setting both, an exact expiration date and the underlying asset(s). Future contacts have an established maturity date up front. Although, they both involve a negotiation in either buying and/or selling in a future date. Q4. You hold 20,000 shares in ABC ple which are currently priced at 500p. ABC has developed a revolutionary flying machine. If trials prove successful the share price will rise significantly. If the government bans the use of the machine, following a trial failure, the share price will collapse. Required: (a) Explain and illustrate how you could use the traded options market to hedge your position. Further information (Hint: Go for Sept. puts with the 450 exercise price). Current time: 30 January. Traded option quotes on ABC plc on 30 January: Option Option March March June Sept. ABC plc 450 500 550 (b) What is meant by intrinsic value, time value, in-the-money, at-the-money and out-of-the- money