section{Financial instrument at a specific future date and

section{Financial Futures}Financial Futures are defined as futures contract to buy or sell a specific financial instrument at a specific future date and at a specified price. The market value of these contracts generally moves in a direction opposite to that of the interest rates. The major difference between options and financial future is that option gives the right to buy(sell) the instrument or commodity at the expiration where future contract must be fulfilled.

Financial Futures generally includes the following.egin{itemize}    item Currency Futures    item Stock Index Futures    item Interest Rate Futures    item Treasury Bond Futures    item Eurodollar Deposit Futuresend{itemize}subsection{Affect on Economy}Futures can be used to hedge or speculate the uncertainty of the market. When used for hedging, futures are used as a protection to potentially unstable market movement in undesirable direction. By future contract, attempt is made to stabilize the unpredictable market changes. On the opposite, speculators want to benefit from the potential movements in the prices of the underlying assets.

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If market participants anticipate an increase in the price of an underlying asset in the future, they could potentially gain by purchasing the asset in a futures contract and selling it later at a higher price on the spot market or profiting from the favorable price difference through cash settlement. However, they could also lose if an asset’s price is eventually lower than the purchase price specified in the futures contract. Conversely, if the price of an underlying asset is expected to fall, some may sell the asset in a futures contract and buy it back later at a lower price on the spot.Financial future is a zero sum game, the amount one gains, someone else loses the same.section{Quantitative easing}Quantitative easing is an unconventional monetary policy in which a central bank purchases government securities or other securities from the market in order to lower interest rates and increase the money supply.

In an attempt to make financial institutes more capable of lending to consumers with more flows of liquids, central bank applies quantitative easing to supply more liquid to the financial institutes. The U.S. central bank, the Federal Reserve, implemented several rounds of quantitative easing following the 2007-08 global financial crisis.

The Bank of Japan and the European Central Bank have also implemented QE recently.subsection{Benefits}The central bank attempts to regulate flow of liquid through quantitative easing. When economy stalls, central bank supplies more liquid to private sector by purchasing government bonds and thus encourage private financial institutes to lend more money and accelarate economic growth.subsection{Drawbacks}Quantitative easing should be applied in more conservative manner, too application can cause inflation.

This may happen in situations when there is limited goods available for sale but the supply of liquid increases suddenly. When the supply of liquid doesn’t end up to consumers from the private banks or financial institutes, the quantitative easing will not be effective. This can also potentially make depreciation of home countries currency causing residents to buy imported goods for increased price.section{Marking-to-Market}Marking-to-Market is an accounting of current market values of assets and liabilities with the aim to provide realistic appraisal of current financial position. This is also known as fair value accounting. The current fair price value of securities is recorded regularly so that this resembles the current market value rather than book value. There are two counter parties on either side of a futures contract – an usually bullish long trader and am usually bearish short trader. The long account will be debited and the short account will be credited if the futures marked to market value goes down and the reverse happens in reverse case.

Some properties of marking to market are as follow:egin{itemize}item As prices are not fixed, contracts may change over the time and that has to be recorded on regular basis. this changes lead to either profit or loss to the investors. This change also causes their accounts to be credited or debited from their margins accounts. Therefore, price change is a factor for MTM.item MTM is similar to commodity futures. This is because MTM has to deal with control and manage risks through hedging.

item Interest rates rise or drop, there will be change in MTM.end{itemize}subsection{Example}As we know from our best, margin is the key to high profits. Suppose, if an investor agrees to a contract for some commodity at $20,000 and pay $1000 for right to take that position, the $1000 is the margin. If the contract values goes to $21,000 then the profit is 100 Percent. But if the value of contract goes down to $19,000 then this will cause $1000 loss. This change in margin values can also change the mark to market measurement.subsection{General Discussion}A general practice for most of the companies is that to estimate budget at the end of the fiscal year.

To prepare this they must need annual financial statements which will reflect the current market value of their accounts. Also they need to determine the percentage of their loans and debt. This decisions can be taken by using MTM measurement.