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    Financial Derivatives

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    Trifan_Dumitru
    Financial derivatives are financial instruments whose value is based on an underlying asset. They can be used for hedging risk, speculation, and arbitrage. There are various kinds of derivatives including forwards, futures, options, and swaps. In the Czech Republic, derivatives trading began in the early 1990s on over-the-counter (OTC) markets and later expanded to include exchange-traded derivatives (ETD).

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    Financial Derivatives

    Uploaded by

    Trifan_Dumitru
    9 views12 pages
    Financial derivatives are financial instruments whose value is based on an underlying asset. They can be used for hedging risk, speculation, and arbitrage. There are various kinds of derivatives including forwards, futures, options, and swaps. In the Czech Republic, derivatives trading began in the early 1990s on over-the-counter (OTC) markets and later expanded to include exchange-traded derivatives (ETD).

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    Financial Derivatives

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    Financial derivatives are financial instruments whose value is based on an underlying asset. They can be used for hedging risk, speculation, and arbitrage. There are various kinds of derivatives including forwards, futures, options, and swaps. In the Czech Republic, derivatives trading began in the early 1990s on over-the-counter (OTC) markets and later expanded to include exchange-traded derivatives (ETD).

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    © All Rights Reserved
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    Download as ppt, pdf, or txt
    9 views12 pages

    Financial Derivatives

    Uploaded by

    Trifan_Dumitru
    Financial derivatives are financial instruments whose value is based on an underlying asset. They can be used for hedging risk, speculation, and arbitrage. There are various kinds of derivatives including forwards, futures, options, and swaps. In the Czech Republic, derivatives trading began in the early 1990s on over-the-counter (OTC) markets and later expanded to include exchange-traded derivatives (ETD).

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    Financial derivatives

    Content
    • Financial derivatives
    – Definition
    – Uses
    – Kinds
    – Application in Czech Republic
    • OTC
    • ETD
    Financial derivatives – Definition
    • Are financial instruments, linked to a specific
    financial instrument, indicator or commodity.

    • Through which specific financial risks can be


    traded in financial markets in their own right.

    • Value infers from the price of the underlying


    item (i.e. the reference price).
    (OECD, 2011)
    Financial derivatives – Uses
    • Are used for many purposes:
    – Provide leverage or gearing
    – Speculate and make a profit
    – Hedge or mitigate risk in the underlying
    – Obtain exposure to the underlying
    – Create option ability
    Financial derivatives – Uses
    • Hedging
    – Insurance against loss
    • Speculation
    – Market price X Future price
    • Arbitrage between markets
    – Current buying price X Price specified in a futures
    contract
    • Risk management
    Financial derivatives – Uses
    • Hedging
    – a technique that attempts to reduce risk
    – derivatives allow risk related to the price of the underlying
    asset to be transferred from one party to another
    • Speculation
    – Speculators look to:
    • buy an asset in the future at a low price according to a
    derivative contract when the future market price is high
    • to sell an asset in the future at a high price according to
    a derivative contract when the future market price is
    low
    Financial derivatives - Kinds
    • The first generation derivatives
    – FORWARD
    • At a price specified today
    – FUTURES
    • At aprice on a specified future date
    – OPTION
    • Call option X Put option
    – SWAP
    • To exchange cash on or before a specified future date
    Financial derivatives - Kinds
    • The second generation derivatives
    – are combination of classical derivatives
    • Future options
    • Swaption
    • Double options
    • Caption
    • Floortion
    • Forwards swaps
    – traded on OTC markets
    Financial derivatives – Czech Republic
    • since the early 1990´s
    • beginning of trading OTC contracts
    • 1993
    – CSOB was the first bank which offer new services
    to clients, and hedge against exchange rate risk by
    financial options
    • Czech legislation defines the derivatives in
    three different definitions of different sets of
    instruments.
    OTC
    • OTC – over the counter derivatives
    – contracts - traded (and privately negotiated)
    directly between two parties, without going
    through an exchange or other intermediary
    – swaps, forward rate agreements, and exotic
    options
    – A market is the largest market for derivatives
    ETD
    • Exchange-traded derivatives
    • Traded via derivatives exchanges.
    • Are traded as standardized contracts defined
    by the exchange.
    • Standardized by:
    – underlying assets, time and location of delivery,
    method of settlement
    • Promotes market depth and liquidity.
    Questions?

    Thank you for your attention!

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