What is derivatives? Explain Futures, Swaps, Options.

Question

Accepted Answer

Derivatives are financial instruments whose value is derived from an underlying asset or benchmark.

Futures are contracts to buy or sell an asset at a predetermined price on a future date.
Swaps are agreements to exchange cash flows or liabilities based on predetermined conditions.
Options give the holder the right, but not the obligation, to buy or sell an asset at a predetermined price within a specified period.

Accepted Answer

Derivatives are the financial instruments but not a financial asset because we can’t own derivatives

Derivatives are derived by any underlined asset

Future are the contract that are traded on exchange it comes with matheurity with different spot and strike prices

Swaps are the bilateral contract it’s is customised contract between parties in over the counter market

There are different types of swaps equity swaps interest rate swaps credit default swaps fx swaps crosscurrency swaps and many more

For hedging purpose

Options are derivatives that has buy and sell contracts with different spot and strike prices options writers can also be write on indices they come with matheurity and the expiry is on thursday’s of the week

What is derivatives? Explain Futures, Swaps, Options.

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