Derivatives

“Derivatives”

Derivatives

Part A

Derivatives is the name given to the family of the markets in which future settlement operations are implemented, making it possible to manage the price risk of various assets. Four types of contracts are traded in these markets, “term”, “future”, “options” and “swaps”.

The origin of the term derivative is linked to the idea that the prices of these contracts have a close connection, i.e. prices in the futures markets, in most cases, depend upon or derived from prices prevailing in the physical markets. Derivatives can be traded on organized Scholarships or called OTC. The OTC market is, in most cases, spontaneous and informal. Arises, usually between large institutions without fixed place of meeting, with low transparency in the disclosure of prices and does not follow specific rules. It's basically a market in which the parties negotiate among themselves.

Derivatives Market

There is a great flexibility in the negotiation of contract items, such as quality, quantity, guarantees, settlement, etc. Examples of these derivatives are forward contracts, swaps and flexible options

Forward Contracts

Forward Contracts are agreements for purchase and sale of an asset at a certain price agreed between the parties for settlement specific future date. These contracts are nontransferable and negotiation can occur in both OTC and in scholarship.

Swaps

Swaps are private agreements between two companies or financial institutions to exchange future cash flows, respected predetermined formula. It is a bilateral contract whereby the parties agree to settle, then (in the future), an operation performed in the present, in order to eliminate the risk posed by mismatch between assets and liabilities.

Flexible Options

Flexible Options are private agreements between two parties in which the terms of the contracts are traded. With an initial payment, a party has the right to buy or sell the asset at a certain date at a predetermined price. The other part of the operation receives this payment as compensation for their exposure to risk.

Already offer local scholarships and appropriate systems for trading, registration, clearing and settlement of transactions of purchase and sale contracts and disclosure of transactions carried out there. In addition, establish procedures and standards for monitoring and regulating markets, guaranteeing the authenticity of transactions and proper settlement. Contracts traded there are standardized, such as futures and options.

Handbags Futures Contracts

Handbags Futures Contracts are agreements to purchase/sell an asset for a future date at a price agreed between the parties. These contracts are standardized in relation to the quantity and quality of assets, settlement forms, deadlines, among others, and has just trading on the stock exchange, and possible settlement of the contract before maturity.

Options Contracts

Options Contracts are agreements in which one party acquires the right to buy / sell an asset at a fixed price by a certain date and the counterparty is obliged to sell / buy the asset in exchange for a single upfront payment. The options can also be traded in the OTC market, the case of flexible options. When traded, the standardization of contractual items is similar to futures ...