DERIVATIVES

What is a derivative?
A financial instrument that derives its
value from the movement in
commodity price, foreign exchange
rate and interest rate of an
UNDERLYING ASSET or FINANCIAL
INSTRUMENT.
Underlying- specified interest
rate, commodity price, foreign
exchange rate, price index and
other variable.

Why do we use derivative?

Derivative is used in order to
manage financial risk from changes
in:
- commodity price
- cash flow
- foreign currency exposure

MIFE

MANILA INTERNATIONAL
FUTURES EXCHANGE

Functioned as the Philippines main

commodity and derivatives market

Examples of derivatives..
Futures Contract

Forward Contract

Option Contract
Interest Rate Swap Derivative

Futures Contract
Is a contract to purchase or sell a specified
commodity at some future date at a
specified price.
-traded in a futures exchange market
-debt and equity securities being traded in
the stock market

Option Contract
Gives the holder the right to purchase or
sell an asset at specified price during a
definite period at some future time.
-it

is a RIGHT not an OBLIGATION