In a Nutshell

1. Derivatives are financial contracts whose value is based on an underlying asset.

2. Forward contract is a contract that simultaneously obligates the buyer to purchase and the
seller to sell an asset in a specified future date.
3. Future contract is a contract where in there is a market-to-market activities unlike on the
forward contract.
4. Open outcry auction is an auction in which trading is conducted by cry-out or calling out bid and
offers.
5. Strike price is a price of an underlying security that is exercised.
6. Currency swaps is used to avoid exchange rate risk when firms mismatch currencies with their
assets and liabilities.
7. Total return swaps involves one party to make payments on a specific rate while the other is
based on the total return of an underlying assets.
8. Companies entered swap agreements for comparative advantages.
9. Derivatives are used to ensure that there is balance of the exchange rates of the goods that are
traded internationally.
10. In future market exchange, members are more prioritize than nonmembers and this
nonmembers transacts through floor brokers or the ones who are authorized to do trades in an
exchange floor.