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FINANCIAL DERIVATIVES Derivatives are financial instruments whose value is derived from the value of something else. The main types of derivatives are: futures forwards options swaps
DERIVATIVES: pose unsuitably high amounts of risk for small or inexperienced investors are complex instruments devised as a form of insurance, to transfer risk among parties based on their willingness to assume additional risk, or hedge against it typically have a large notional value massively leverage the debt in an economy
THE USE OF DERIVATIVES The main use of derivatives is to reduce risk for one party while offering the potential for a high return (at increased risk) to another. One use of derivatives is as a tool to transfer risk by taking the opposite position in the futures market against the underlying commodity.
SPECULATION AND ARBITRAGE Speculators may trade with other speculators as well as with hedgers. In most financial derivatives markets, the value of speculative trading is far higher than the value of true hedge trading.
OTC AND EXCHANGE-TRADED: Over-the-counter (OTC) • Exchange-traded derivatives (ETD) COMMON DERIVATIVE CONTRACT TYPES: • Futures/Forwards • Options • Swaps •
OVER-THE-COUNTER (OTC) derivatives are contracts that are traded (and privately negotiated) directly between two parties, without going through an exchange or other intermediary. Over-the-counter
EXCHANGE-TRADED DERIVATIVES (ETD) derivatives are those derivatives products that are traded via specialized derivatives exchanges or other exchanges. Exchange-traded
COMMON DERIVATIVE CONTRACT TYPES Futures: A futures contract is a form of forward contract, a contract to buy or sell an asset of any kind at a pre-agreed future point in time, that has been standardised for a wide range of uses. It is traded on a futures exchange
FORWARDS A forward contract is an agreement between two parties to buy or sell an asset (which can be of any kind) at a preagreed future point in time.
OPTIONS An option is a contract that gives the buyer the right, but not the obligation, to buy or sell an underlying asset at a specific price on or before a certain date.
TYPES OF OPTIONS Exchange traded options Over-the-counter Employee options stock options
A swap is the exchange of one set of cash flows for another. A swap is a contract between two parties in which the first party promises to make a payment to the second and the second party promises to make a payment to the first.
Interest rate swaps Currency Swaps Commodity swaps Equity swaps Interest rate swaps
Thank you for your attention! Veronika Jablonická Katarína Kotrusová