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Basics of Derivatives and Their Types

The document discusses the meaning and types of derivatives. There are four main types of derivatives: forwards, futures, options, and swaps. Forwards and futures are contracts to buy or sell an underlying asset at a future date. Options give the right but not obligation to buy or sell an asset. Swaps involve exchanging cash flows between two parties.

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Shobhit Gupta
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42 views7 pages

Basics of Derivatives and Their Types

The document discusses the meaning and types of derivatives. There are four main types of derivatives: forwards, futures, options, and swaps. Forwards and futures are contracts to buy or sell an underlying asset at a future date. Options give the right but not obligation to buy or sell an asset. Swaps involve exchanging cash flows between two parties.

Uploaded by

Shobhit Gupta
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PDF, TXT or read online on Scribd

MEANING & IT’S TYPES

MEANING

 Derivative is a contract or a product whose value is derived from


value of some other asset known as underlying.
 Derivatives include vide range of underlying asset.
 such as FINANCIAL ASSET ( share, bonds & foreign exchange)
Agriculture commodities such as wheat sugar coffee
Types of Derivatives

There are 4 types of Derivatives


1. FORWARDS
2. FUTURES
3. OPTIONS
4. SWAP

Let the discuss about each type of derivatives in next slides.


FORWARDS

 It is a Contractual agreement between two parties.


 To buy and sell an Underlying Asset.
 At a Future date
 At a Particular price
 In forward contract both parties are Obliged to honor
contract irrespective of price
 These are OVER THE COUNTER (OTC) Contract.
FUTURES

 It is similar to Forward
 Except that Futures deal made through an Organized and
regulated exchange
 It is also termed as TRADED FORWARD CONTRACT.
OPTIONS

 It is a contract that gives RIGHT to sell or buy the underlying asset on


or before a stated date and at a stated price
 It is not an obligation
 Buyer of option pays the premium to seller
SWAPS
 It is a Agreement between two parties to exchange Cash flow in a pre arranged
formula
 It is a series of forward contract
 It helps market participant to manage risk associates with volatile interest rates ,
currency rates, exchange rates or commodity price's

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