Types of derivatives ppt

The most common underlying assets include stocks, bonds, commodities, currencies, interest rates and market indexes. Many investors use derivative securities as a way to hedge their investment portfolios against certain risk. Strategic financial management types of derivatives put and. A forward contract is simply an agreement to buy or sell a underlier at a price specified at a future a future date. Derivatives meaning, types, advantages, disadvantages. In my previous articles, i covered the topic of otc derivative and its types that are credit derivatives and interest rate derivatives. Basically, all commodity derivatives are materials that are not of the financial type, such as stock options, bonds, and hard cash one of the most profitable, and also one of the riskiest, commodity. Financial asset classes broadly categorised into equity, interest rates and currencies equity as an asset class will include single stocks and equity indices interest rates as an asset class will include government bonds, government bond benchmarks and money market benchmarks. The table summarizes the relevant characteristics of three types of fx derivatives. India is one among the top5 producers of most of the commodities and to being a major consumer of bullion and energy products. Ppt financial derivatives powerpoint presentation free to. Listofderivativerules belowisalistofallthederivativeruleswewentoverinclass.

Strategic financial management types of derivatives put and call options. Derivatives have the characteristics of high leverage and of being complex in their pricing and trading mechanism. Mar 22, 2020 derivatives meaning, types, advantages, disadvantages by vrp last updated mar 22, 2020 0 derivatives is a product whose value is derived from the value of one or more basic variables, called bases underlying asset, index, or reference rate, in a contractual manner. Agriculture contributes about for about 22% to the gdp of the indian economy. An overview of foreign exchange derivatives dummies. Evaluate if derivatives numerical differentiation is used to avoid tedious difference quotient calculations differentiating. A forward contract is a customized contract between two parties to buy or sell an asset at a specified future time at a price agreed upon today. The terms of a forward contract are as agreed between. Importance and types of commodity derivatives money mindz. Strategic financial management types of derivatives put. May 09, 2018 types of derivatives there are three basic types of contracts. The derivative is defined at the end points of a function on a closed interval. The secondorder derivatives are used to get an idea of the shape of the graph for the given function.

The most common types are forwards, futures, options and swap. Because the types of fx derivatives closely correspond to the identity of the fx market participant, the table is based on the. In the first two types both the parties were bound by the contract to discharge a certain duty buy or sell at a certain date. This growth has run in parallel with the increasing direct reliance of companies on the capital markets as the major source of longterm funding. Derivatives ppt derivative finance futures contract. For example, standardized stock options by law require the party at risk to have a certain amount deposited with the exchange, showing that they can pay for any losses. A derivative security derives its value from another. Agency risk simply means that if there is a principal and an agent, the agent may not act in the best interest of the principal because their objectives are different from that of the principal. Assetbacked commercial paper is based on corporate. These are simplest of all derivatives and hence one can start with forwards at first instance. The derivative is the slope of the original function. Cdos were a primary cause of the 2008 financial crisis. The most common types of derivatives are futures, options, forwards and swaps. Different types of derivatives have different levels of counter party risk.

Types of derivatives there are three basic types of contracts. Importance and types of commodity derivatives money. Types of derivatives in indian financial markets youtube. Types of derivatives forwards futures options warrants leaps baskets swaps 2. This course provides insights into different types of equity derivatives, their trading, clearing and settlement and the regulatory framework, preparing you for a. Types of derivatives products types of derivatives and derivative market. Exchange traded derivatives etd are traded through central exchange with publicly visible prices. May 21, 2018 3 types of derivatives etfs you should know all three types require you handle with care by will ashworth, investorplace contributor may 21, 2018, 7. Derivatives overview, types, advantages and disadvantages. Nov, 2019 certain kinds of exchangetraded funds etfs, including commodity etfs, leveraged etfs, and inverse etfs, use derivatives instead of other types of assets to track the performance of their benchmarks. Example the value of a stock option depends on the value of the underlying stock. Correctly identifying and classifying assets is critical to the survival of a company, specifically its solvency and risk. Fx derivatives are contracts to buy or sell foreign currencies at a future date. When the price of the underlying changes, the value of the derivative also changes.

A swap in simple terms can be explained as a transaction to exchange one thing for another or barter. Chapter 1 introduction to derivatives what is a derivative. Derivatives are defined as the varying rate of change of a function with respect to an independent variable. The most notorious derivatives are collateralized debt obligations. It is a financial instrument which derives its valueprice from the underlying assets. Derivatives are financial instruments whose value is derived from other underlying assets. These four categories are what we call the 4 basic types of derivative contracts. Derivatives can be used for a number of purposes, including insuring against price movements hedging, increasing exposure to price movements for speculation or getting. The most common types of derivatives are forwards, futures, options, and swaps. Derivatives ppt free download as powerpoint presentation. The options contract, on the other hand is asymmetrical.

Nov 24, 2016 derivatives are financial instruments whose value is derived from other underlying assets. These bundle debt like auto loans, credit card debt, or mortgages into a security. The common types of derivatives include options, futures, forwards, warrants and swaps. The most popular types of swaps are plain vanilla interest rate swaps. A forward contract is an agreement between two parties a buyer and a seller to purchase or sell something at a later date at a price agreed upon today. Originally, underlying corpus is first created which can consist of one security or a combination of different securities. However, swaps are complex instruments that are not traded in the indian stock market. Ppt financial derivatives powerpoint presentation free.

Importance and types of commodity derivatives commodity market in india. Derivatives are broadly categorized by the relationship between the underlying asset and the derivative, the type of underlying asset, the market in which they trade, and their payoff profile. A derivative is a financial instrument whose value is derived from the value of another asset, which is known as the underlying. Derivatives enable price discovery, improve the liquidity of the underlying asset, serve as effective hedge instruments and offer better ways of raising money. D assist professor vsa school of management, salem. Functions on closed intervals must have onesided derivatives defined at the end points. A derivative is an instrument whose value is derived from the value of one or more underlying, which can be commodities, precious metals, currency, bonds, stocks, stocks indices, etc. The two major types of markets in which derivatives are traded are namely. And many etfs use a combination of derivatives and assets such as stocks. Derivatives are financial instruments whose price is determined by. The derivative is primarily used when there is some varying quantity, and the rate of change is not constant. Types of derivatives and derivative market ipleaders. Jul 27, 2015 this course provides insights into different types of equity derivatives, their trading, clearing and settlement and the regulatory framework, preparing you for a career in the fascinating world. Forward contracts, sometimes called forward commitments, are.

Its value is based on the promised repayment of the loans. A derivative is a financial instrument whose value depends on or derives from the value of another instrument the underlying. Derivatives are financial instruments whose price is determined by the price of an underlying asset. Chart and diagram slides for powerpoint beautifully designed chart and diagram s for powerpoint with visually stunning graphics and animation effects. A very less talked about problem pertaining to derivatives market is that of agency risks. Since the development of derivatives contracts to help reduce risk for farmers, the uses and types of derivatives contracts and the size of the derivatives market have increased significantly. Financial derivatives ppt free download as powerpoint presentation. Oct 29, 2015 in my previous articles, i covered the topic of otc derivative and its types that are credit derivatives and interest rate derivatives. Definition an agreement between two parties which has a value determined by the price of something else types options, futures and swaps uses risk management speculation reduce transaction costs regulatory arbitrage three different perspectives end users corporations investment managers investors intermediaries marketmakers traders. The functions can be classified in terms of concavity. This underlying entity can be an as t, index, or interest rate, and is often simply called the underlying. The concavity of the given graph function is classified into two types namely. Derivatives are contracts that derive their value from the performance of an underly ing asset, event, or outcomehence their name. Currency and commodity derivatives explained in detail.

The different types of commodity derivatives can range from energy sources and mined metals to textiles. What are the different types of commodity derivatives. Futures contracts are special types of forward contracts in the sense that they are standardized exchangetraded contracts, such as. Over the counter otc derivatives are traded between two parties bilateral negotiation without going through an exchange or any other intermediaries. In financial markets the two parties to a swap transaction contract to exchange cash. Jan 03, 2017 derivatives are defined as the type of security in which the price of the security dependsis derived from the price of the underlying asset. Four most common examples of derivative instruments are forwards, futures, options and swaps. In this scenario it would mean that if a derivative trader. In finance, a derivative is a contract that derives its value from the performance of an underlying entity. Continuing with our coverage on derivatives,today,i take up currency and commodity derivatives as the next topic of discussion.

Unit i financial derivatives introduction the past decade has witnessed an explosive growth in the use of financial derivatives by a wide range of corporate and financial institutions. Our new crystalgraphics chart and diagram slides for powerpoint is a collection of over impressively designed datadriven chart and editable diagram s guaranteed to impress any audience. Nov, 2019 the most popular types of swaps are plain vanilla interest rate swaps. Certain kinds of exchangetraded funds etfs, including commodity etfs, leveraged etfs, and inverse etfs, use derivatives instead of other types of assets to track the performance of their benchmarks. Ppt application of derivatives powerpoint presentation. In this article, we will list down and explain those 4 types.

Derivatives difference quotients are used in many business situations, other than marginal analysis as in the previous section derivatives difference quotients called the derivative of fx computing called differentiation derivatives ex. The 4 basic types of derivatives management study guide. Derivatives meaning first and second order derivatives. Cfa institute investment foundations, third edition chapter 11. A function is differentiable if it has a derivative everywhere in its domain. There are 3 types of traders in the derivatives markets.

Derivatives, forwards, futures, swaps and options 1. The risk could be exposure to a commodity, an interest rate, or a currency. Forwards are over the counter otc derivatives that enable buying or selling an underlying on a future date, at an agreed price. They allow two parties to exchange fixed and floating cash flows on an interestbearing investment or loan. The terms of a forward contract are as agreed between counterparties and is not stock exchange regulated.

The derivative is used to measure the sensitivity of one variable dependent variable with respect to another variable independent variable. Forward contracts are the simplest form of derivatives that are available today. These contracts are legally binding agreements, made on trading screen of stock exchange, to buy or sell an asset in. Livestock, fruits and vegetables and raw materials from the forest are also included.