Implication of dervitives ? Is dervites increase ? Why its increasing ? What are the reason?...

Implication of dervitives ? Is dervites increase ? Why its increasing ? What are the reason? What is dervitives used for? How its effect economy ?

Expert Solution

First of all coming to the definition of Derivative,

"Derivative is financial contract whose value is determined from the value of underlying asset".

There are many types of derivatives. Few of them are..

Futures & forward, Options, Swaps...

Derivatives are traded on two forms.

One is Over the Counter (OTC).

Other is Over Specialised Exchanges like Options & Futures.

Main motto of trading with derivative is...

Hedging the risk i.e., as discussed its value depend on underlying asset. An Investor may purchase a derivative contract and whose price is moving in opposite direction to the value of an asset the investor owns. In this manner, profits in the derivatives may offset losses in underlying asset.

It is common word that Derivative increase the efficiency of Financial markets.

Coming to last question as how dervitaives effecting the economy... As discussed above, it protect people from a change in prices of an underlying asset.

Derivatives acts as a hedge against changes in commodities prices.

jeff jeffy answered 6 months ago

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