{"id":25202,"date":"2015-02-20T08:31:03","date_gmt":"2015-02-20T08:31:03","guid":{"rendered":"http:\/\/vskills.in\/certification\/blog\/?p=25202"},"modified":"2024-04-03T13:19:50","modified_gmt":"2024-04-03T07:49:50","slug":"financial-derivatives","status":"publish","type":"post","link":"https:\/\/www.vskills.in\/certification\/blog\/financial-derivatives\/","title":{"rendered":"Financial Derivatives"},"content":{"rendered":"

\"Financial<\/a><\/p>\n

Financial Derivatives \u00a0are instruments that allow financial risks\u00a0to be traded directly because each derivative is linked to a specific instrument or indicator\u00a0(e.g. a stock market index) or commodity.<\/p>\n

The derivative is a contract which gives one\u00a0party a claim on an underlying asset (e.g. a bond, commodity, currency, equity) or cash\u00a0value of the asset, at some fixed date in the future.<\/p>\n

The other party is bound by the contract\u00a0to meet the corresponding liability. A derivative is said to be a contingent instrument\u00a0because its value will depend on the future performance of the underlying assets. The traded\u00a0derivatives that are sold in well-established markets give both parties more flexibility than\u00a0the exchange of the underlying asset or commodity.<\/p>\n

Consider the case of the pig farmer who knows that in six months\u2019 time s\/he will have a\u00a0quantity of pork bellies to sell. The farmer wishes to hedge against the fluctuation in pork\u00a0belly prices over this period. He\/she can do so by selling (going short) a six-month \u2018\u2018future\u2019\u2019\u00a0in six months\u2019 time, at an agreed fixed price on the day the future is sold. The agent buying\u00a0the pork belly future goes long, and is contractually bound to purchase the pork bellies in\u00a0six months\u2019 time. The financial risk being traded is the risk that the value of pork bellies\u00a0will change over six months: the farmer does not want the risk, and pays a counter party\u00a0to assume it.<\/p>\n

The price of the future will reflect the premium charged by the buyer for\u00a0assuming the risk of fluctuating pork belly prices. The underlying asset (or \u2018\u2018underlying\u2019\u2019) is\u00a0a commodity, pork bellies, and the futures contract is the contingent claim. If the actual\u00a0a commodity, pork bellies, and the futures contract is the contingent claim. If the actual\u00a0pork bellies had been sold, the farmer would face uncertainty about price fluctuations and\u00a0might also incur some cost from seeking out a buyer for an arm\u2019s-length contract.<\/p>\n

The future\u00a0increases the flexibility of the market because it is sold on an established market. Similarly,\u00a0in the currency markets, futures make it unnecessary for the actual currency (the underlying\u00a0instrument) to be traded.<\/p>\n

Click here for government certification in Accounting, Banking & Finance<\/a><\/p>\n

 <\/p>\n","protected":false},"excerpt":{"rendered":"

Financial Derivatives \u00a0are instruments that allow financial risks\u00a0to be traded directly because each derivative is linked to a specific instrument or indicator\u00a0(e.g. a stock market index) or commodity. The derivative is a contract which gives one\u00a0party a claim on an underlying asset (e.g. a bond, commodity, currency, equity) or cash\u00a0value of the asset, at some…<\/p>\n","protected":false},"author":625,"featured_media":25339,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_joinchat":[],"footnotes":""},"categories":[1519],"tags":[2194,2195,2196],"class_list":["post-25202","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-accounting-banking-and-finance","tag-asset","tag-liability","tag-obligation"],"acf":[],"yoast_head":"\nFinancial Derivatives<\/title>\n<meta name=\"description\" content=\"What are Financial Derivatives and how do they help?\" \/>\n<meta name=\"robots\" content=\"index, follow, max-snippet:-1, max-image-preview:large, max-video-preview:-1\" \/>\n<link rel=\"canonical\" href=\"https:\/\/www.vskills.in\/certification\/blog\/financial-derivatives\/\" \/>\n<meta property=\"og:locale\" content=\"en_US\" \/>\n<meta property=\"og:type\" content=\"article\" \/>\n<meta property=\"og:title\" content=\"Financial Derivatives\" \/>\n<meta property=\"og:description\" content=\"What are Financial Derivatives and how do they help?\" \/>\n<meta property=\"og:url\" content=\"https:\/\/www.vskills.in\/certification\/blog\/financial-derivatives\/\" \/>\n<meta property=\"og:site_name\" content=\"Vskills Blog\" \/>\n<meta property=\"article:publisher\" content=\"https:\/\/www.facebook.com\/vskills.in\" \/>\n<meta property=\"article:published_time\" content=\"2015-02-20T08:31:03+00:00\" \/>\n<meta property=\"article:modified_time\" content=\"2024-04-03T07:49:50+00:00\" \/>\n<meta property=\"og:image\" content=\"https:\/\/www.vskills.in\/certification\/blog\/wp-content\/uploads\/2015\/02\/Financial-Derivatives.jpg\" \/>\n\t<meta property=\"og:image:width\" content=\"223\" \/>\n\t<meta property=\"og:image:height\" content=\"226\" \/>\n\t<meta property=\"og:image:type\" content=\"image\/jpeg\" \/>\n<meta name=\"author\" content=\"Sneh lata\" \/>\n<meta name=\"twitter:label1\" content=\"Written by\" \/>\n\t<meta name=\"twitter:data1\" content=\"Sneh lata\" \/>\n\t<meta name=\"twitter:label2\" content=\"Est. reading time\" \/>\n\t<meta name=\"twitter:data2\" content=\"2 minutes\" \/>\n<script type=\"application\/ld+json\" class=\"yoast-schema-graph\">{\"@context\":\"https:\/\/schema.org\",\"@graph\":[{\"@type\":\"WebPage\",\"@id\":\"https:\/\/www.vskills.in\/certification\/blog\/financial-derivatives\/\",\"url\":\"https:\/\/www.vskills.in\/certification\/blog\/financial-derivatives\/\",\"name\":\"Financial Derivatives\",\"isPartOf\":{\"@id\":\"https:\/\/www.vskills.in\/certification\/blog\/#website\"},\"primaryImageOfPage\":{\"@id\":\"https:\/\/www.vskills.in\/certification\/blog\/financial-derivatives\/#primaryimage\"},\"image\":{\"@id\":\"https:\/\/www.vskills.in\/certification\/blog\/financial-derivatives\/#primaryimage\"},\"thumbnailUrl\":\"https:\/\/www.vskills.in\/certification\/blog\/wp-content\/uploads\/2015\/02\/Financial-Derivatives.jpg\",\"datePublished\":\"2015-02-20T08:31:03+00:00\",\"dateModified\":\"2024-04-03T07:49:50+00:00\",\"author\":{\"@id\":\"https:\/\/www.vskills.in\/certification\/blog\/#\/schema\/person\/268a02ac43c21c08a0decf13b7827a99\"},\"description\":\"What are Financial Derivatives and how do they help?\",\"breadcrumb\":{\"@id\":\"https:\/\/www.vskills.in\/certification\/blog\/financial-derivatives\/#breadcrumb\"},\"inLanguage\":\"en-US\",\"potentialAction\":[{\"@type\":\"ReadAction\",\"target\":[\"https:\/\/www.vskills.in\/certification\/blog\/financial-derivatives\/\"]}]},{\"@type\":\"ImageObject\",\"inLanguage\":\"en-US\",\"@id\":\"https:\/\/www.vskills.in\/certification\/blog\/financial-derivatives\/#primaryimage\",\"url\":\"https:\/\/www.vskills.in\/certification\/blog\/wp-content\/uploads\/2015\/02\/Financial-Derivatives.jpg\",\"contentUrl\":\"https:\/\/www.vskills.in\/certification\/blog\/wp-content\/uploads\/2015\/02\/Financial-Derivatives.jpg\",\"width\":223,\"height\":226},{\"@type\":\"BreadcrumbList\",\"@id\":\"https:\/\/www.vskills.in\/certification\/blog\/financial-derivatives\/#breadcrumb\",\"itemListElement\":[{\"@type\":\"ListItem\",\"position\":1,\"name\":\"Home\",\"item\":\"https:\/\/www.vskills.in\/certification\/blog\/\"},{\"@type\":\"ListItem\",\"position\":2,\"name\":\"Financial Derivatives\"}]},{\"@type\":\"WebSite\",\"@id\":\"https:\/\/www.vskills.in\/certification\/blog\/#website\",\"url\":\"https:\/\/www.vskills.in\/certification\/blog\/\",\"name\":\"Vskills Blog\",\"description\":\"Vskills - 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