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Financial Derivatives
Afiya Momin
Agenda
2
What are Derivatives
Why Derivatives
Participants in Derivatives Market
Types of Derivatives
Q & A
Financial contract whose value is derived from the value of underlying asset
Index
Forex
Equity
Bonds
Commodity
Derivative
Why Derivatives
4
Hedge
Hedge if market moves exactly
opposite to the expectations
Speculation
Speculate and make profit i...
Participants in a Derivatives Market
5
Speculator
A trader who enters the
derivatives market to
make profits accepting
the...
Forwards Contract
6
Contract between two parties to buy
or sell an asset at a specified price on
a future date.
 Traded i...
Futures Contract
7
Contract between two parties to buy
or sell an asset at a specified price on
a future date.
 Standardi...
Options Contract
8
Contract that gives the holder the
rights but not the obligation to
buy/sell the underlier at a particu...
Swaps
9
A derivative in which two
counterparties exchange certain
benefits of one party’s financial
instrument for those o...
Thank you
Financial Derivatives, an overview
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Financial Derivatives, an overview

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This is an attempt to introduce financial derivatives to a novice. It contains the information about derivatives and its types.

Published in: Economy & Finance
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Financial Derivatives, an overview

  1. 1. Financial Derivatives Afiya Momin
  2. 2. Agenda 2 What are Derivatives Why Derivatives Participants in Derivatives Market Types of Derivatives Q & A
  3. 3. Financial contract whose value is derived from the value of underlying asset Index Forex Equity Bonds Commodity Derivative
  4. 4. Why Derivatives 4 Hedge Hedge if market moves exactly opposite to the expectations Speculation Speculate and make profit if market moves as expected Arbitrage Arbitrage if there is a price differential between two markets for the same underlier
  5. 5. Participants in a Derivatives Market 5 Speculator A trader who enters the derivatives market to make profits accepting the risk in the endeavor Hedger A hedger is someone who uses derivatives as a means of reducing risk and minimize losses Arbitrageur A trader who takes advantage of the discrepancies between the price of an asset in multiple markets
  6. 6. Forwards Contract 6 Contract between two parties to buy or sell an asset at a specified price on a future date.  Traded in OTC  Customized contract  Physical and Cash settlement  Regulatory risk  Default risk  Not flexible  Counterparty is known
  7. 7. Futures Contract 7 Contract between two parties to buy or sell an asset at a specified price on a future date.  Standardized Contracts  Traded in Exchange  Highly regulated  Counterparty is unknown
  8. 8. Options Contract 8 Contract that gives the holder the rights but not the obligation to buy/sell the underlier at a particular price on/before a specified time period  Traded in OTC and Exchange  Types of an Option- • Call • Put  Status of an Option- • In The Money (ITM) • At The Money (ATM) • Out of The Money (OTM)  Styles of an Option- • American • European
  9. 9. Swaps 9 A derivative in which two counterparties exchange certain benefits of one party’s financial instrument for those of the other party’s financial instrument  Traded in OTC  Types of Swaps- • Interest Rate Swap • Equity Swap • FX Swap • Credit Default Swap
  10. 10. Thank you

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