The derivatives markets contain different types of contracts. Forward contracts, futures contracts, options,

FUTURE CONTRACTS $/$ FORWARD CONTACTS are standardized contracts that are traded on exchanges and are marked$-$to$-$market daily, but physical delivery of the underlying asset is rarely taken.

Which of the following are used to hedge against price changes for input materials?

A$.$ Commodity futures

B$.$ Financial futures

Fitcom Corp., an American company, has purchased $4$ million worth of equipment from a French company. Payment for the equipment is not due for six months. Fitcom Corp. does not want to give up the free trade credit, but it also wants to make sure that the dollar cost of $4$ million does not rise over the next six months. Which of the following actions would allow Fitcom Corp. to lock in the dollar cost of the equipment?

A$.$ Take a long position in interest rate futures

B$.$ Take a short position in foreign exchange futures

C$.$ Take a short position in interest rate futures

D$.$ Take a long position in foreign exchange futures

Forward and futures currency contracts reflect an obligation to either buy or sell currency at a future date, whereas options are contracts traded between buyers and sellers that give the option holder the right, but not the obligation, to buy or sell a specific $($underlying$)$ asset at a specific price, called the exercise or strike price, on or before an expiration date.

A PUT OPTION $/$ A CALL OPTION gives the option holder the right to sell an asset at a fixed price during a particular period.