futures and options) are traded on exchanges where contracts are standardised and completion guaranteed by the exchange. Their existence and creation depends on the existence of counter-parties, market participants willing to take alternative views on the outcome of the same event. The use of derivatives in managing exchange rate risk and/or interest rate risk can be explored by clicking on the following links:ĭerivatives are not fixed in volume of supply like normal equity or bond markets. The legal right is an asset with its own value that can be bought or sold. ![]() Options give you the right without the obligation to fix a future price. tea, pork bellies), shares, bonds, share indices, currencies and interest rates.ĭerivatives are contracts that give the right and sometimes the obligation, to buy or sell a quantity of the underlying or benefit in some other way from a rise or fall in the value of the underlying.įorwards, FRAs and futures effectively fix a future price. The most common underlyings are commodities (e.g. ![]() ![]() This page introduces key ideas.Ī derivative is an asset whose performance (and hence value) is derived from the behaviour of the value of an underlying asset (the "underlying"). Derivatives are a key tool in risk management.
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