Essay on Derivative
A derivative is a financial instrument  or more simply, an agreement between two people or two parties  that has a value determined by the price of something else (called the underlying). It is a financial contract with a value linked to the expected future price movements of the asset it is linked to  such as a share or a currency. There are many kinds of derivatives, with the most notable being swaps, futures, and options. However, since a derivative can be placed on any sort of security, the scope of all derivatives possible is nearly endless. Thus, the real definition of a derivative is an agreement between two parties that is contingent on a future outcome of the underlying.
Some of the widely known underlying assets …show more content…
OptionsIt is of two different kinds such as calls and puts. Those who take calls option, they are not obligated to purchase given quantity of the underlying variable, at a mentioned price on or prior to a scheduled future date. On the other hand, buyers in case of puts option may not necessarily sell a mentioned quantity of the underlying variable at a mentioned price on or prior to a given date.
SwapsThese are private contracts between two entities to deal in cash flows in the future following a predecided formula. They are somewhat like forward contracts' portfolios. Swaps are also of two types such as interest rate swaps and currency swaps.
Interest rate swapsin this case, only interest related cash flows can be exchanged between the entities in one currency.
Currency swapsin this case of swapping, principal and interest can be exchanged in one currency for the same in other form of currency.

Importance of Derivatives
Financial transactions are fraught with several risk factors. Derivatives are instrumental in alienating those risk factors from traditional

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Derivatives
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Currency Derivatives
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Questions On Derivatives And Derivatives
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How Weather Derivatives Are Based On Standard Derivative Structures
1634 Words  7 PagesWeather derivatives are based on standard derivative structures, such as puts, calls, and swaps. Fundamental attributes of these structures are: the tick size, which is the payout amount per unit in the index beyond the strike; the strike, which is the value of the underlying index when the contract starts to payout; and the limit, which is the contract’s maximum financial payout. v. Premium . The buyer of a weather option pays a premium to the seller that is typically between 10% and 20% of…
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