What is an example of a derivative security

what is an example of a derivative security

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Feb 13,  · Last Modified Date: February 13, CPW. Date: February 13, A derivative security, also known as a derivative stock, is a financial instrument whose price is dependent on one or a number of underlying financial assets. A derivative security, frequently called simply a “derivative” in the financial world, is an investment instrument that gets its value or ultimate price from the performance . A derivative is a financial security with a value that is reliant upon or derived from, an underlying asset or group of assets—a benchmark. The derivative itself is a contract between two or more.

Derivative markets are investment markets that are geared toward the buying and selling of a certain type of securities, or financial instruments. These securities derive their value, or at least part of their value, from the value of another security, which is called the underlier.

The underlier can come in many forms, including commodities, mortgages, stocks, bonds, or currency. The reason investors may invest in a derivative security is to hedge their bet. By investing in something based on a more stable underlier, the investor derivativr assuming less risk than if she invested in an risky security without an underlier. There are actually two distinct forms of the derivative market.

It is possible to purchase and sell derivatives in the form of futures or as over-the-counter offerings. It is not unusual for investors who are interested in what does ma mean after a name to actively participate in both of these financial markets.

In the case of futures, there are markets around the world that allow trading that involves derivative contracts. In this type of financial market environmentthe exchange functions as a counterparty to members engaged in buying and selling activity. The process for investing in the futures market works by establishing derivativr situation where derkvative party sells a futures contract while the counterparty purchases a new futures contract.

The result of the two transactions effectively produces a position that is considered to be at zero. This approach essentially transfers the bulk of the risk to the counterparty in the arrangement and makes it possible to earn what is an example of a derivative security return by exchanging a long position for a short one.

Along with futures, what is an example of a derivative security are over-the-counter or OTC markets. In this scenario, the derivatives focus on larger clients, such as government sn, investment banks, and hedge funds. Trading on exmaple markets can involve several different types of options, including credit derivatives.

The volume of how to make buko pandan dessert trading activity is substantial, involving significant amounts of resources on the part of the investors involved.

The appeal of a derivative market has to do with the potential for a larger return than is usually the case with other forms of investment.

In like manner, the ability to transfer the liability from one party to another is also appealing in some situations. While it is true that derivatives can be somewhat volatile, the fact is that many of the trades carry no more risk than in investment markets. As long as the investor performs due diligence as it relates to understanding past, current, and projected performance, it is possible to do very well in a the market. After many years in the teleconferencing industry, Michael decided to embrace his passion for trivia, research, and writing by becoming a full-time freelance writer.

Since then, he has contributed articles to a variety of print and online publications, including wiseGEEK, and his work has also appeared in poetry collections, devotional anthologies, and several newspapers.

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Common Features of Derivatives

Explanation: An example of a derivative security is a commodity futures contract, and a call option on Intel stock. There are several types of derivative securities. A derivative security is a financial product whose value depends on the value of another asset. Mar 03,  · Derivative Securities. Derivative securities are financial instruments whose value depends on basic variables. The variables can be assets, such as stocks, bonds, currencies, interest rates, market indices, and goods. The main purpose of using derivatives is to consider and minimize risk. An example of a derivative security is: a. common share of General Motors. b. call option on Microsoft stock. c. commodity futures contract. d. B and C.

Tiana Kent. Answers 1. Giovanna Hill 5 October, 0. Answer: The corrects answers are "a commodity futures contract", and "a call option on Intel stock". Explanation: An example of a derivative security is a commodity futures contract, and a call option on Intel stock. There are several types of derivative securities. A derivative security is a financial product whose value depends on the value of another asset. They can be classified in several ways, depending on their complexity, their characteristics or the agents involved in them.

Know the Answer? Not Sure About the Answer? Newest Questions in Business. In a fuel economy study, each of 3 race cars is tested using 5 different brands of gasoline at 7 test sites located in different regions of the country. General Mills conducted focus groups to collect and interpret data to gain insights into customer preferences and loyalty. Which best describes the process General Mills has used? Determining the research design B. The company issued no common stock during the year.

When the activity level declines within the relevant range, what should happen with respect to the fixed cost per unit and variable cost per unit? Neither the fixed nor variable cost per unit change B.

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