1. Seminar: Timely Topics for Today’s Business World Mr. Bernstein Futures January 14, 2015

2. Seminar: Timely Topics for Today’s Business World Mr. Bernstein Futures Obligation to deliver or accept delivery of a commodity at a future date Example: Wheat – Farmers all come to market following harvest, driving prices down. Grain elevator operators want to insure product in case of drought. They agree to a price months ahead of harvest. Example: Jet Fuel – Oil refiners want to lock in prices in case demand falls. Airlines want to insure product in case of crisis in Middle East. They agree to prices at various dates in the future. Example: The S&P 500 – Hedgers want to reduce their stock market exposure without selling stocks. Investors want to increase their stock market exposure without buying stocks. They agree to prices for a basket of stocks to be delivered at a future date. 2

3. Seminar: Timely Topics for Today’s Business World Mr. Bernstein Futures Standardized contracts trade on exchanges which stand between the buyer and seller Exchanges charge a fee and compete to list popular contracts Popular contracts include Stock Index futures, Bond futures, Gold, Oil and other Commodities futures Both buyer and seller post “initial margin” to the exchange 10% Initial margin gives users 10x leverage Post $1mm initial margin, control p&l of $10mm in assets Each day long and short positions are marked to market and “variation margin” must flow back and forth to the exchange 3

4. Seminar: Timely Topics for Today’s Business World Mr. Bernstein Futures Market is a three-legged stool: Hedgers (Investors) Speculators Arbitrageurs All three legs must be present for liquid, efficiently priced market 4

5. Seminar: Timely Topics for Today’s Business World Mr. Bernstein Arbitrageurs Arbitrageurs profit from spreads between similar products, insuring price transfer and increasing liquidity If S&P 500 futures move too far above the price of The 500 stocks, arbs will buy a basket of stocks and sell futures to lock in a profit. At this time the spread was around 5 points, or 34 bps. (SGIP function) 5

6. Seminar: Timely Topics for Today’s Business World Mr. Bernstein Forward Curves Futures have various expiration Dates, each reflect ing today’s supply and demand for dates in the future. The Eurodollar futures reflect market perception of 90-day interest rates In the future. At this time the market believes 90-day interest rates will rise to 1% by Dec. 2015 And 3.5% by March 2022. (CCRV function) 6

7. Seminar: Timely Topics for Today’s Business World Mr. Bernstein Forward Curves The market predicts WTI oil prices will decline to $84/barrel by 2020. 7

8. Seminar: Timely Topics for Today’s Business World Mr. Bernstein Forward Curves The market predicts US stock market volatility will rise throughout 2013 8