DERIVATIVE MARKETS
Chapter notes, video classes, MCQ practice tests and quick-revision one-liners for Indian Economy and Indian Financial System — JAIIB.
One-liners from this chapter
Free sample — 8 of 66 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 swap contract in derivative markets?
Agreement to exchange cash flows between two parties over time.
What are the four main types of derivative contracts?
The four main types are forwards, futures, options, and swaps.
What is a 'notional principal' in a swap agreement?
Reference amount on which swap payments are calculated, not exchanged.
What is a forward contract?
A forward contract is a customised, over-the-counter (OTC) agreement between two parties to buy or sell an asset at a specified price on a future date, with no daily mark-to-market settlement.
What is an 'over-the-counter' (OTC) derivative?
Derivative traded directly between parties outside formal exchanges.
How does a futures contract differ from a forward contract?
A futures contract is standardised and traded on a recognised exchange with daily mark-to-market settlement and a clearing house as the central counterparty, unlike the customised OTC forward contract.
What is a 'naked option' in derivatives trading?
Option written without holding the underlying asset as cover.
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