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DERIVATIVES MARKETS - Assignment Example
Finance & Accounting
Pages 7 (1757 words)
Date Question #1 [Derivatives Markets and Financial Innovations] Introduction Capital markets facilitate the free trading in all securities. It has two mutually supporting and indivisible segments: the primary market and the secondary market…
Since the securities are listed and traded in the stock exchange, the secondary market is also called the stock market. In primary market, companies interact with investors directly while in the secondary market investors interact with themselves. In both cases, the capital market intermediaries play an important role .The secondary market, based on all available information, determines the price and risk of the issued securities, it provides useful signals to both listed companies and investors to act in the primary markets. The secondary market may also include the over the counter market and the derivatives market. In the stock market share prices are determined by the demand and supply forces. On the other hand, in the over the counter market prices are negotiated between the buyer and the seller. The derivatives market deals in futures and options. In the derivatives markets, securities or portfolios of securities are traded for future delivery. In case of options, the future delivery is conditional as the buyer has a right to exercise or not to exercise the option. The derivatives market and my proposed derivative product The emergence of new markets for derivatives such as forwards and futures can be traced back to the willingness of risk adverse economic agents to protect themselves against uncertainties occurring from price fluctuations in various asset categories. ...
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