01:220:301 Lecture Notes - Lecture 4: Futures Contract, Futures Exchange, Walmart
29 Feb 2016
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Document Summary
A derivaive is a security with a price that is dependent upon or derived from one or more underlying assets. The derivaive itself is a contract between two or more paries based upon the asset or assets. Its value is determined by luctuaions in the underlying asset. The most common underlying assets include stocks, bonds,commodiies, currencies, interest rates and market indexes. Derivaives either be traded over-the-counter (otc) or on an exchange. Otc derivaives consitute the greater proporion of derivaives in existence and are unregulated, whereas derivaives traded on exchanges are standardized. Otc derivaives generally have greater risk for the counterparty than do standardized derivaives. Originally, derivaives were used to ensure balanced exchange rates for goods traded internaionally. With difering values of diferent naional currencies, internaional traders needed a system of accouning for these diferences. Today, derivaives are based upon a wide variety of transacions and have many more uses.
