Due to its flexibility and multidimensionality of the derivatives market offers tremendous opportunities to reduce costs, insurance risks, however, may cause a variety of crises.It is in the unmanageable growth of derivatives lies threatens their power.Despite this dubious distinction, these financial instruments are chained interest for a long time.Derivative - what's this?What is "eat"?
What does the word derivative?
In English derivative - a "derivative".And what says such a designation?A derivative - a derivative financial instrument.In other words, this obligation to deliver the underlying asset underlying the derivative at a time.And derivatives - a financial instrument for futures transactions, ie agreements of several parties, which are pre-define their duties and rights in the future in relation to underlying assets.
which refers to derivatives of the stock market?
Financial derivatives - is, by definition, futures and forward contracts, OTC and exchange-traded options, exchange-traded derivatives to swap swaps themselves.
What functions are performed by derivatives?
Derivative - a security that performs certain functions.For example, an important property is hedging (insurance) the possibility of future price changes in intangible assets (which include equity indices), for goods in the value of loans.This is the essence of derivatives financial markets.Speaking of the hedging item, the derivatives - is the essential management tools that allow commodity producers to insure against possible future adverse changes in the price of their product.
Why is "derivative" instruments?
Despite the seeming complexity of derivatives - are securities with a fairly simple to use.Derivatives are named because the formation of prices of derivatives depends on the changes in the value of the underlying asset, which lies in their basis.For example, if the gold price changes, the price of a derivative, and it will also be different.That is why you must always speak to what the underlying asset is a particular derivative.
What are the types of derivatives?
There are several main types of financial instrument.
- Derivatives in the foreign exchange and stock markets, which constitute a contract for the purchase and sale of different currencies.Mandatory requirement - the performance over time, which depends on the exchange rate to buy or sell currencies, and in the case of the stock market, there is a direct correlation of the underlying asset such as a share.Such derivatives can also be classified further into three main groups: forwards / futures, swaps and options.The first is directly dependent on the future price of the underlying assets.Swap contracts depend on the ratio of the price at the moment the price in the future.Options - from changes in the value, but to a lesser extent than the futures and forwards.These groups, in addition to swaps, referred to as "major derivative instruments."
- Derivatives interest.This instrument came through the periods of short-term destabilization of interest rates.Interest derivative - a hedging instrument, its use is further affected by the provision of liquidity to the markets of borrowed capital and the possibility of fixing specific rates of return in the future.The most widely used in the international market have found interest rate swaps, options "Flora" and "cap".
- Credit Derivatives - it is structured OTC financial instruments, which separate the credit risk of the assets to the future transfer of the counterparty.These derivatives market allows the beneficiary to transfer credit risk on assets of the guarantor on the side without the need to sell the asset.
