Derivative Instruments

Posted in Finance, Accounting and Economics Terms, Total Reads: 1171

Definition: Derivative Instruments

These are the securities/instruments whose value is determined by the value of the underlying asset or a factor. The underlying assets can be stocks, commodities, prime lending rates, currencies, bonds, shares, stock market indices etc. It is called a “DERIVATIVE” because its value is “DERIVED” from the underlying asset.

These instruments are basically used for 2 purposes: -

  • Hedging the risk
  • Speculation

The commonly used derivative instruments are: -

  • Forward Contracts
  • Futures
  • Options
  • Swaps
  • Warrants

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