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Derivatives

Derivatives

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Published by: api-3716588 on Oct 18, 2008
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03/18/2014

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DERIVATIVES
An Introduction
Derivatives

\u2022What is a derivative?: a financial product which
has been derived from another financial product or
commodity. Without the underlying product or
market, the derivative would have no independent
existence. Common types of derivatives are
Forwards, Swaps and Options.

\u2022Derivatives have risen from the need to manage
the risk arising from movements in markets
beyond our control, which may severely impact
the revenues and costs of the firm.

Swaps

\u2022A swap, a popular financing tool, is a contract between two
parties (counter parties) to exchange two streams of payment
for an agreed period of time. Variants of swaps - interest rate,
currency, commodities, equity

\u2022Financial swaps are a funding technique, which permit a
borrower to access one market and then exchange the
liability for another type of liability. The global financial
markets present borrowers and investors with a wide variety
of financing and investment vehicles in terms of currency
and type of coupon - fixed or floating.

\u2022It must be noted that swaps by themselves are not a funding
instrument; they are a device to obtain the desired form of
financing indirectly. The borrower might otherwise have
found this too expensive or even inaccessible.

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