DERIVATIVES
Chapter notes, video classes, MCQ practice tests and quick-revision one-liners for Accounting and Financial Management for Bankers — JAIIB.
One-liners from this chapter
Free sample — 8 of 65 rapid-fire Q&A cards.
What is a derivative instrument in financial markets?
A derivative is a financial contract whose value is derived from an underlying asset such as stocks, bonds, commodities, currencies, interest rates, or market indices.
What is a futures contract in derivative markets?
Standardized exchange-traded contract for future asset delivery.
What are the four main types of derivative instruments?
The four main types are forwards, futures, options, and swaps, each used for hedging, speculation, or arbitrage purposes.
What is the intrinsic value of an option?
Difference between underlying asset price and strike price.
What distinguishes a forward contract from a futures contract?
A forward contract is a private, customised agreement between two parties settled at maturity, whereas a futures contract is a standardised, exchange-traded contract with daily mark-to-market settlement.
What is a swap derivative contract?
Agreement to exchange cash flows between two parties.
What is meant by 'underlying asset' in the context of derivatives?
The underlying asset is the financial instrument or commodity on which the derivative contract is based, and whose price movement determines the value of the derivative.
What is a 'long position' in a futures contract?
Buyer's position obligating purchase of asset at maturity.
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