Derivatives being one such complex topic need proper guidance to be able to understand it. Let us go on to learn the basics of derivatives in this eBook. These basics will help you a great deal with the Finance portion of RBI Grade B and SEBI Grade A Exams. Let us get started with the Derivatives. You can use the link given below to download the Derivatives PDF.
Basics of Derivatives – Derivatives PDF
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A. What are Derivatives?
- Derivatives are contracts that derive values from underlying assets or securities.
- The underlying asset or assets from which these contracts derive values can be stocks, bonds, indices, currencies or commodities like gold, silver, oil, natural gas, electricity, wheat, sugar, coffee, and cotton etc.
- The performance of a derivative is dependent on the underlying asset’s performance.
- This underlying asset is simply called an “underlying”. This asset is traded in a market where both the buyers and the sellers mutually decide its price, and then the seller delivers the underlying to the buyer and is paid in return.
- Derivatives contracts can be either over the counter or exchange-traded.
B. What is the purpose that Derivatives serve?
- Derivatives are instruments to manage financial risks.
- Derivatives serve the purpose of risk management. These work on the principle of risk transfer, depending upon the roles donned by different market participants.
- Derivatives are one of the ways to prevent investments against market fluctuations.
- The basic principle behind entering into derivative contracts is to earn profits by speculating on the value of the underlying asset in future.
This is all from us in this Basics of Derivatives PDF. We hope that you like and appreciate it.
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