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Derivatives - Intorduction

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20 views6 pages

Derivatives - Intorduction

Uploaded by

aayush.nj
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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INTRODUCTION TO

DERIAVTIVES Aayush N Jain


Intern
Paterson Securities Pvt. Ltd.
Derivatives and types of derivatives

Derivatives are financial contracts between two or more parties that derive their
value from an underlying asset, group of assets, or benchmark. They can be traded
on an exchange or over-the-counter, and their prices are based on fluctuations in the
underlying asset.

Types of Derivatives

1. Forwards
2. Futures
3. Swaps
4. Options
Forwards

A forward contract is a type of derivative contract that derives its value from an underlying asset. It is a private,
customizable agreement between two or more parties to buy or sell an asset at a predetermined price on a
future date. The contract is physically settled, meaning it is considered fulfilled when the goods are exchanged.

Futures

Futures are financial derivatives that obligate the buyer to purchase or the seller to sell a stock or set of stocks at
a predetermined future date and price. The value of a futures contract comes from changes in the price of the
underlying asset, such as a company's shares, a set of stocks, or an index. Futures contracts have expiration
dates and set prices that are known upfront.

Swaps

Swaps derivatives are customizable contracts between two parties to exchange liabilities or cash flows. They are
based on underlyings such as currencies, commodities, interest rates, and equities. Swaps are traded over-the-
counter (OTC) between businesses or financial institutions, and the terms are negotiated to suit both parties.

Options

An options derivative is a financial contract that gives the buyer the right to buy or sell an underlying asset at a
specified price and date, but not the obligation. The price is called the strike price and the date is called the
expiration date.
Types of Swaps
Interest rate swaps
Counterparties exchange one stream of future interest payments for another, which
can help mitigate financial risk and optimize cash flow

Currency swaps
Counterparties exchange principal amounts and interest payments denominated in
different currencies, which can help manage exposure to exchange rate fluctuations

Commodity swaps
Counterparties exchange floating cash flows based on a commodity's spot price for
fixed cash flows determined by a pre-agreed price of a commodity, which can help
manage commodity price risk while ensuring long-term supply agreements
THANK YOU

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