Stock and derivative intruments

Capital and Finance Markets

Stock and Derivative Instruments

Marta Cristina Amorim Miranda – Erasmus Program UWM

Stock and Derivative Instruments - Capital and Finance Market

Index
Introduction

2

1. Derivative Instruments

3

1.1. Definition

3

1.2. Pros & cons of derivative financial instruments

4

2. Futures and Forwards
2.1. Futures

4
4

2.1.1. Concept

4

2.1.2. Products traded on futures market

4

2.1.3. Features

5

2.2. Forwards

5

2.2.1. Concept

5

2.2.2. Similarities and differences of forwards and futures

6

2.3. Pros and Cons of Futures and Forwards
3. Swaps

6
7

3.1. Concept

7

3.2. Types of Swaps

7

3.3. Purpose and utility of a swap operation

7

3.4. Pros and Cons of Swaps

7

4. Options

8

4.1. Concept

8

4.2. Examples

8

4.3. Pros and Cons of Options

9

Conclusion
Bibliography

10
10

1

Stock and Derivative Instruments - Capital and Finance Market

Introduction
When we mention derivatives, most people think of Nick Leeson and the disaster of Barings Bank, and highly risky financial investments. But financial derivatives have been developed to hedge the risks associated with exchange and interest rates and primarily, volatility. So we can say that 'Hedging' is a good thing. It can protect companies and banks against unexpected developments, for example sudden falls or rises in the value of currencies or commodities. In the 1980s, financial futures began to dominate trading. Some investment bankers began to turn hedging into a profitable business in its own right, developing progressively complex ways of hedging. Swaps and options have become the next most common form of derivative trading after the original futures. Options were invented because people liked the security of k nowing they could buy or sell at a certain price, but wanted the chance to profit if the market price suited them better at the time of