FINANCIAL DERIVATIVES
INTRODUCTION: THE REASON TO GO FOR DERIVATIVES
S. (http://www.ddegjust.ac.in/studymaterial/mba/fm407.pdf)
to achieve a required rate of return with minimum risk on your investments;
to overcome or at least minimize the high financial risk arising out of the fluctuating of the interest rates, currency exchange rate and stock prices;
FINANCIAL DERIVATIVES
Derivatives:
This is a security, whose price is dependent upon or derived from one or more underlying assets. The derivative itself is merely a contract between two or more parties. Its value is determined by fluctuations in the underlying asset. Most derivatives are characterized by high leverage.
Underlying assets:
The most common underlying assets include stocks, bonds, commodities, currencies, interest rates and market indexes.
TYPES OF DERIVATIVES DEPENDING ON THE UNDERLYING
ASSET:
Source: pdf/ Financial Der.sent
Commodity derivatives, where is underlying asset is a commodity. For example: agricultural commodity like wheat, soybeans, rapeseed, cotton etc. or precious metals like gold, silver etc.
Financial derivatives, where is underlying asset is a financial instruments including stocks, bonds, treasury bills, interest rate, foreign currencies and other hybrid securities
Financial derivatives differ from Commodity derivatives in the structure and functioning characteristics. Financial derivative is fairly standard, no quality issues are required.
Some Examples of derivatives…
– Options
– Forward Contracts
– Futures
– Swaps
SOME MAIN FEATURES OF FINANCIAL DERIVATIVES:
Source: pdf/ Financial Der. sent
It is a contract: Derivative is the future contract between two underlying parties, which should be accomplished in the future. The time scale depends on the contract: shortterm interest rate futures and longterm interest rate futures contract.
Derives value from underlying asset: the
S. (http://www.ddegjust.ac.in/studymaterial/mba/fm407.pdf)
to achieve a required rate of return with minimum risk on your investments;
to overcome or at least minimize the high financial risk arising out of the fluctuating of the interest rates, currency exchange rate and stock prices;
FINANCIAL DERIVATIVES
Derivatives:
This is a security, whose price is dependent upon or derived from one or more underlying assets. The derivative itself is merely a contract between two or more parties. Its value is determined by fluctuations in the underlying asset. Most derivatives are characterized by high leverage.
Underlying assets:
The most common underlying assets include stocks, bonds, commodities, currencies, interest rates and market indexes.
TYPES OF DERIVATIVES DEPENDING ON THE UNDERLYING
ASSET:
Source: pdf/ Financial Der.sent
Commodity derivatives, where is underlying asset is a commodity. For example: agricultural commodity like wheat, soybeans, rapeseed, cotton etc. or precious metals like gold, silver etc.
Financial derivatives, where is underlying asset is a financial instruments including stocks, bonds, treasury bills, interest rate, foreign currencies and other hybrid securities
Financial derivatives differ from Commodity derivatives in the structure and functioning characteristics. Financial derivative is fairly standard, no quality issues are required.
Some Examples of derivatives…
– Options
– Forward Contracts
– Futures
– Swaps
SOME MAIN FEATURES OF FINANCIAL DERIVATIVES:
Source: pdf/ Financial Der. sent
It is a contract: Derivative is the future contract between two underlying parties, which should be accomplished in the future. The time scale depends on the contract: shortterm interest rate futures and longterm interest rate futures contract.
Derives value from underlying asset: the