Derivative Markets - Essay Example

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Derivative Markets

This essay states that in recent times, the world has converted into an uncertain place for financial organisations. Fluctuations in interest rates have extended, and stock markets are running through growing unpredictability. As a consequence of these variations, the financial organisations have happened to be more anxious about minimising the risks. As the demand for risk reduction techniques has enlarged, it has generated innovative financial tools named financial derivatives. These tools are very convenient in minimising the risks and help financial organisations to hedge. Hedging is a method which is used by financial organisations to counteract the regular risks of price variations. It is considered as important risk managing instrument for portfolio managers, bank executives and corporate accountants. In any derivative contract, the seller comes to an agreement to provide asset at a particular period in future and purchaser approves to pay fixed value for that asset. One can build a clean arbitrage if the future contract is mispriced. Majority of future contracts are priced according to arbitrage. In derivative contract, organisations need to choose investments which can provide good return with estimated price measures. It is also termed as speculation. Speculation is a procedure used in finance for securing profit from riskier investments, but it does not ensure security on investment or principal amount. Speculators use several approaches to make a decision prior to obtaining additional risks through investment. ...Show more

Summary

The researcher of this essay focuses mostly on the analysis of the derivative markets and its issues, such as Hedging, Futures arbitrage, swap contract and covered calls. This essay also briefly discusses the possibilities of marketing in the future…
Author : gmurazik
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