Fair Value

The theoretical value of an Option or a Warrant, determined using pricing models such as the Black-Scholes Model. The Fair Value is often described by the financial press as an important criterion for making investment decisions. If the market price of an Option or a Warrant is below its Fair Value, then it is considered to be under-valued (i.e. cheap), and if its market price is above its Fair Value, then it is considered to be overvalued (i.e. expensive).

Fixing

See Spot Price.

Floor

A floor defines a lower limit on the extent to which the holder of a Put Option or Warrant can participate in the difference between the Strike Price and the Spot Price of the Underlying. In the context of Structured Investments, a floor may refer to the minimum periodic Redemption amount throughout the Life of the investment or at Maturity.

Forward

A derivative contract for the sale and purchase of an Underlying at a specified certain future time at a specified price, both agreed when the contract is made. Both parties under a Forward owe obligations (one party buys and the other sells), whereas the holder of an Option or a Warrant decides whether or not to exercise rights (either to buy or to sell).

Future

A Forward transaction in the form of a standardised contract which is traded on a futures exchange.

 

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