Derivatives Instruments And Financial Engineering Essay

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Derivative Instruments & Financial Engineering
There are many different types of derivative instruments that can be used in financial markets. This paper will examine the various different types of futures contracts, (futures) that are available to be purchased in the marketplace. It will be shown what role they play in managing risk with multinational companies, portfolio managers, and institutional investors alike. It will also be touched on about how speculators can find opportunities for financial gain with the use of futures.
The first thing to understand is there are many different types of future contracts available. Some fall into the energy sector, such as crude oil and natural gas futures. Another sector would be considered the food and fiber sector, such as cotton and orange juice futures. There is the livestock futures sector that consists of but not limited to cattle and hogs (Arora & Kumar, 2013). The very popular metal sector consisting of gold, silver, copper. Finally, interest rate futures will be evaluated that consist of treasury bills and treasury bonds.
Futures play a role in risk management. It will be looked upon to see if financial institutions, that will include commercial banks, insurance companies and mutual fund companies, as many were taking on too much risk overall as it pertains to the purchase of mortgage-backed securities and what role futures may have played in the financial crisis of 2007. A futures contract is just that a
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