Page 6 - DCOM510_FINANCIAL_DERIVATIVES

Rupesh Roshan Singh, Lovely Professional University
Unit 1: Introduction to Derivatives

Unit 1: Introduction to Derivatives Notes

CONTENTS
Objectives

Introduction
1.1 Definitions of Derivatives
1.2 Products of Derivatives
1.2.1 Equity Derivatives
1.2.2 Interest Rate Derivatives
1.2.3 Commodity Derivatives
1.2.4 Foreign Exchange Derivatives
1.2.5 Credit Derivatives
1.3 Participants and Functions (Types of Members to be included)
1.3.1 Participants in a Derivative Market
1.3.2 Economic Function of the Derivative Market
1.4 Types of Derivatives
1.4.1 Popular Derivative Instruments

1.4.2 Other Types of Financial Derivatives
1.5 Exchange-traded vs. OTC Derivatives Markets
1.6 Summary
1.7 Keywords
1.8 Review Questions
1.9 Further Readings

Objectives

After studying this unit, you should be able to:

State the definition and meaning of derivatives;
Explain the various products of derivatives;
Explain the participants and functions of derivatives;
Identify the types of derivative;
Discuss the difference in Exchange-traded vs. OTC derivatives markets.
Introduction

This unit will enable you to learn the basic concept of derivative as in recent decades, financial
markets have been marked by excessive volatility. As foreign exchange rates, interest rates and
commodity prices continue to experience sharp and unexpected movements, it has become
increasingly important that corporations exposed to these risks be equipped to manage them
effectively. Various sections and sub-sections of this unit cover the products, participants,
functions and types of members to be included in mechanics of derivation. To make the learning
easier, we will take the help of globally recognized best practices.

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