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Entry of derivatives began in early in 1990 with currency swaps called dirty swaps. Few banks are
allowed by SBP to deal in derivatives securities.
Shares
2.
Debentures
3.
Mutual funds
4.
Gold
5.
Steel
6.
Interest rate
7.
Currencies.
Derivatives are financial contracts of pre-determined fixed duration, whose values are derived
from the value of an underlying primary financial instrument, commodity or index, such as:
interest rates, exchange rates, commodities, and equities.
Derivatives are risk shifting instruments. Initially, they were used to reduce exposure to changes
in foreign exchange rates, interest rates, or stock indexes or commonly known as risk hedging.
Hedging is the most important aspect of derivatives and also its basic economic purpose. There
has to be counter party to hedgers and they are speculators. Speculators dont look at derivatives
as means of reducing risk but its a business for them. Rather he accepts risks from the hedgers in
pursuit of profits. Thus for a sound derivatives market, both hedgers and speculators are
essential.
Benefits of derivatives
Following would be the benefits of derivatives market
1.
2.
3.
4.
Price discovery
Risk management
Improve market efficiency for underlying assets
Reduce market transaction costs
choose an option that suits your need. The concept of financial derivatives may operate on an
abstract level but its applications and impact are definitely felt in the real world.