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Essay / Research Paper Abstract
This 5 page paper is a comprehensive introduction to derivatives. The paper explains what they are, what give rise to derivative markets, gives examples of derivatives and the way they reduce or transfer risk, what they do with that risk, and the benefits and problems associated with derivatives. The paper includes discussions on forward contracts, futures, options and swaps. The bibliography cites 10 sources.
Page Count:
5 pages (~225 words per page)
File: TS14_TEderivative.rtf
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Unformatted sample text from the term paper:
the principle of the title; this is not their purpose (Dodd, 2002). The aim of the tool is to capture market price changes of an underlying event, such as prices
for a commodity changing or exchange rates fluctuating or other event. The name derivative comes from the way the derivative contracts, derive their value and price from an underlying security
or asset or form an index, exchange rate, interest rate or other event (Howells and Bain, 2003).. There are a number of different types of derivatives, these include futures,
forwards, swaps and options which may also be combined creating hybrid financial tools. Their main use is to reduce, limit or transfer risk from one party to another. This is
the driving force behind trade in derivatives, as seen with their use in risk management, such as hedging. The way they are used may be seen as creating new markets
and can be a stabilising influence on the economy, but there are also some dangers associated with their use. To consider the role and types of derivatives that are available
understanding what gives rise to the markets and how will increase the understanding of the different types of derivative, new and old as this demonstrated how they are used in
order to limited or transfer risk by one party. It must also be remembered that risk is not only in the way a price changed, but can also be created
as a result of uncertainty regarding future rates. Derivatives are not new, they have had an important role to play, the first recoded transaction were in 2000 BCE when
goods sold to India from what is now Bahrain Island were subject to consignment transactions (Markham, 1994, 1987). It is also known that Mesopotamia had a trade in derivatives
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