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Derivatives are considered to be a particular instrument or product
Finance & Accounting
Pages 12 (3012 words)
Financial Services Table of Contents Financial Services 1 Table of Contents 2 Introduction 3 Significance of Derivatives 4 Basics of Derivatives 5 Definition of Derivatives 5 Understanding Derivatives 6 Uses and Users of Derivatives 7 Benefits of Derivatives 9 Risks Associated with the Use of Derivative Instruments 13 Conclusion 15 References 16 Introduction Derivatives are considered to be a particular instrument or product the worth of which is obtained as a resultant of more than one fundamental variables referred to as an underlying asset, value associated with the reference rate and index by way of a contract.
The market related to derivative securities has been stated to be perceived similar to an insurance market in relation to the considered financial risks. The rapid rate of globalisation in terms of the capital markets has resulted to a significant rise in the level of volatility related to interest rate across the globe. Numerous companies displayed a preference in favour of purchasing insurance in opposition to the rising improbability and instability with regard to the market linked to interest rate. Owing to this particular rationale, the market related to interest rate derivatives witnessed a sharp rise and development during the past two decades (Crotty & North Carolina State University, 2006). This paper will intend to provide a lucid comprehension of the usage of derivative instruments along with assessing their relative benefits as well as the involved risks. ...
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