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Derivatives are a kind of financial security that get their value from another underlying asset, such as the price of a stock, a commodity such as gold or even interest rates.
A foreign exchange derivative is a financial derivative whose payoff depends on the foreign exchange rates of two (or more) currencies. These instruments are commonly used for currency speculation and arbitrage or for hedging foreign exchange risk .
The market risk inherent in the underlying asset is attached to the financial derivative through contractual agreements and hence can be traded separately. [11] The underlying asset does not have to be acquired. Derivatives therefore allow the breakup of ownership and participation in the market value of an asset. This also provides a ...
FpML (Financial products Markup Language) is a business information exchange standard based on Extensible Markup Language (XML) that enables business-to-business over-the-counter (OTC) financial derivative transactions online by following W3C standards.
Financial instruments are monetary contracts between parties. They can be created, traded, modified and settled. They can be cash (currency), evidence of an ownership, interest in an entity or a contractual right to receive or deliver in the form of currency (forex); debt (bonds, loans); equity (); or derivatives (options, futures, forwards).
Credit derivatives are fundamentally divided into two categories: funded credit derivatives and unfunded credit derivatives. An unfunded credit derivative is a bilateral contract between two counterparties, where each party is responsible for making its payments under the contract (i.e., payments of premiums and any cash or physical settlement amount) itself without recourse to other assets.
A fund derivative is a financial structured product related to a fund, normally using the underlying fund to determine the payoff. This may be a private equity fund , mutual fund or hedge fund . Purchasers obtain exposure to the underlying fund (or funds) whilst improving their risk profile over a direct investment.
An equity swap is a financial derivative contract (a swap) where a set of future cash flows are agreed to be exchanged between two counterparties at set dates in the future. [1] The two cash flows are usually referred to as "legs" of the swap; one of these "legs" is usually pegged to a floating rate such as LIBOR. This leg is also commonly ...