Financial Risk Management
bwrr 3063 financial risk management group a individual assignment
Derivatives
A derivative is a term that refers to a wide variety of financial instruments or “contract whose value is derived from the performance of underlying market factors, such as market securities, interest rates, currency exchange rates and commodity, credit and equity prices. Derivatives generally involve an agreement between two parties to exchange a standard quantity of an asset or cash flow at a predetermined price and at a specified date in the future.
The derivatives markets are the financial markets for derivatives. The market can be divided into two groups of derivative contracts. That is Over the Counter (OTC) derivatives and Exchange Traded Derivatives (ETD. The legal nature of these products is very different as well as the way they are traded, through many market participants are active in both.
The main use of derivatives is to reduce risk for one party. The diverse range of potential underlying assets and pay-off alternatives leads to a huge range of derivatives contracts available to be traded in the market. Derivates can be based on different types of assets such as commodities, equities (stocks), bonds, interest rates, exchange rates or indexes. Their performance can be determined both the amount and the timing of the pay-offs.
Two types of derivatives 1. Over The Counter (OTC) Market
OTC markets are traded, huge and privately negotiated directly between two parties, without going through an exchange or other intermediary. It is consist of investment bank who traders who make market in these derivatives, and clients such as hedge funds, commercial banks, government sponsored enterprise. Products that are traded OTC are swaps, forward rate agreements, forward contracts and credit derivatives. OTC presents investment opportunities for informed investors, but also has a high degree of risk and many issuers are small companies with limited operating histories or
Derivatives
A derivative is a term that refers to a wide variety of financial instruments or “contract whose value is derived from the performance of underlying market factors, such as market securities, interest rates, currency exchange rates and commodity, credit and equity prices. Derivatives generally involve an agreement between two parties to exchange a standard quantity of an asset or cash flow at a predetermined price and at a specified date in the future.
The derivatives markets are the financial markets for derivatives. The market can be divided into two groups of derivative contracts. That is Over the Counter (OTC) derivatives and Exchange Traded Derivatives (ETD. The legal nature of these products is very different as well as the way they are traded, through many market participants are active in both.
The main use of derivatives is to reduce risk for one party. The diverse range of potential underlying assets and pay-off alternatives leads to a huge range of derivatives contracts available to be traded in the market. Derivates can be based on different types of assets such as commodities, equities (stocks), bonds, interest rates, exchange rates or indexes. Their performance can be determined both the amount and the timing of the pay-offs.
Two types of derivatives 1. Over The Counter (OTC) Market
OTC markets are traded, huge and privately negotiated directly between two parties, without going through an exchange or other intermediary. It is consist of investment bank who traders who make market in these derivatives, and clients such as hedge funds, commercial banks, government sponsored enterprise. Products that are traded OTC are swaps, forward rate agreements, forward contracts and credit derivatives. OTC presents investment opportunities for informed investors, but also has a high degree of risk and many issuers are small companies with limited operating histories or