This website uses cookies to ensure you have the best experience. Learn more

Derivates In Market Essay

2090 words - 8 pages


“A derivative is like a razor, you can use it to shave and make yourself attractive for your girlfriend, you can slit your throat with it or you can use it to commit suicide.’(Anon.) This statement describes to us the problems, and on the other hand rewards, that the proper use of derivatives can bring. The derivatives market has developed responding to the uncertainty about prices, and therefore provided a means of separating out this price volatility. The tendency of the market to move up or down in what appears to be a random manner has brought about the need for financial products which will protect or hedge the investor against the ill effects of market volatility. Certain types of derivatives called Futures and Options might do just that if used properly. In this essay we look at certain types of derivatives called Futures and Options, and how hedgers / investors make use of them to their advantage as well as where the threats seem to lie when dealing with them in general.

These derivative markets allow hedgers to avoid risk by transferring it to speculators who seek it. We have all heard the phrase “keep your options open'; and it is along these lines that the Options derivative has arisen. As we know options are contractual arrangements giving the owner the right, but not the obligation, to buy or sell something at a given price, at some time in the future. It is these Options in general that we want to address as they offer the investor the ability to create a wide variety of risk and return alternatives from the same underlying security. Futures, being exchanged-traded forward contracts, have also provided another choice to suit the needs of the holder and the advantages for and against these will also be looked at.

After looking at the Futures and Options we will turn our attention to discussing the cases for and against the needs of further regulating this market. This issue has been strongly reinforced since many big bets have gone wrong, such as the collapse of Barings and many others. Where do the faults lie which have led to these disasters and who if anybody is to blame? These are matters that will need to be looked at. To begin with lets focus our attention on Futures contracts .

Advantages / Disadvantages from the use of Future Contracts

- As the market for future contracts is standardised and traded on the Stock-exchange ( LIFFE ) then a secondary market can exist and can be traded through the usual transaction mechanisms.
- Holder of a futures contract is locked in an effective selling price therefore if he sells the contract against their position and then sees the market go up rather than down, he cannot take advantage of that upswing.
- If an investor wishes to take advantage of favourable yields but is aware this may increase interest rate exposure, the financial futures markets will provide an opportunity to hedge against possible loss.
- Gearing effect of the margining...

Find Another Essay On Derivates in Market

Revolutionary Work of Art Essay

1890 words - 8 pages art that is reproduced into the contemporary culture (1061). Additionally, in the dynamics of capitalist commodity, “the screen actor knows that he still confronting the public, the consumers who constitute the market” (1062). The actor who offers his labor, self-being, and soul (1062) to the public would still be paid enormous amount of money to use his “skills” to entertain the masses. Even though capitalism exploits the way film is being

Enlightenment Thought in New Zealand Schools

1594 words - 6 pages to focus on the freedom of the individual and the autonomist of the individual. As Kramnick (1995) states “Liberals paid homage to the Enlightenment and invoked its individualistic vision of citizens voluntarily consenting to government, acting freely in the market place and thinking, publishing, and believing what they wanted to, without interference from church or state.” (p.xx) This freedom was only limited by that an individual could not

Psychological Egoism Theory

2240 words - 9 pages The theory of psychological egoism is indeed plausible. The meaning of plausible in the context of this paper refers to the validity or the conceivability of the theory in question, to explain the nature and motivation of human behavior (Hinman, 2007). Human actions are motivated by the satisfaction obtained after completing a task that they are involved in. For example, Mother Teresa was satisfied by her benevolent actions and

How Celtic Folkore has Influenced My Family

1587 words - 6 pages Every family has a unique background that influences the way they live and interact with other people. My parents, who emigrated from Ireland to the States with my three brothers in 1989, brought over their own Celtic folklore and traditions that have helped shaped the way our family operates and lives. One aspect of folklore that has helped shape my family dynamic is the Celtic cross—both its background and what role it has played in our lives

Julia Margaret Cameron

1406 words - 6 pages At a time when women were looked upon as being homemakers, wives, mothers and such the late 1850's presented a change in pace for one woman in specific. Photography was discovered in 1826 and soon after the phenomenon of photography was being experimented with and in turn brought new and different ways of photo taking not only as documenting real time, but also conceptualizing a scene in which an image would be taken. Julia Margaret Cameron will

Evaluation of School Improvement

1403 words - 6 pages The evaluation process should be progressive to incorporate overall planning, implement changes, which contribute to success. In order to focus on school climate and norms, the evaluation design must include the students, instructions, and outcomes to improve communication and building-level concerns to be address in this response. School Climate and Social Norms The school principal, other staff leaders, and personnel set the tone and the

Case Study: The Benefits of Animal Testing

1757 words - 7 pages Nine year old Amy has already had a rough start in life. She was born with an abnormal heart that hinders her everyday activities. Amy is unable to keep up with kids her own age because she often tires out easily. As a consequence, she has very little friends and is often alone. Amy is forced to take different medications everyday just to survive. Amy’s life consists of medicine, doctors, and constant hospital visits. However, Amy is due for a

Myth and Magic: Realism in "One Hundred Years of Solitude"

1531 words - 6 pages “He enjoyed his grandmother's unique way of telling stories. No matter how fantastic or improbable her statements, she always delivered them as if they were the irrefutable truth” (Wikipedia, 2011). Experiences are particular instances of one personally encountering or undergoing something and in these moments of time life changes for the best or the worst and memories are formed. These recollections such as riding your first bicycle, going to

Adiponectin: a Novel Indicator of Malnutrition and Inflammation in Hemodialysis Patients

2384 words - 10 pages Objective Protein-Energy malnutrition (PEM) and inflammation are common and overlapping conditions in hemodialysis patients which are associated with increased risk of morbidity and mortality. Adiponectin is an adipocytokine which is exclusively produced by adipose tissue. Few studies in hemodialysis patients have demonstrated that serum levels of adiponectin were significantly higher in malnourished patients compared to well-nourished ones. The

The Congo Free State: A Legacy of Apathy, Exploitation and Brutality

2298 words - 9 pages Between 1885 and 1908, Belgium’s Leopold II ruled Congo, a region in central Africa, as his personal colony, exploiting the resources and inhabitants for his own gain. Leopold allowed and encouraged Europeans and other Westerners to enter Congo and set up companies whose primary purpose was to gather rubber, which was abundant but difficult to get to in the Congo, using the Congolese as the laborers for the Europeans. Rubber gathering in Congo

Selective Exposition in The Lottery, by Shirley Jackson

1073 words - 4 pages despite Jackson’s omission of details in The Lottery, she manages to create an overtone of mystery that compels the reader to grasp the world of the story rather than define it in terms of the physical world and form their own opinions. Often in stories, setting is a key element, and that the more detailed the setting, the more believable the world of the story is. Jackson does not follow this style in her story; the only real information

Similar Essays

Reduction Technique Of Water Evaporation Essay

1775 words - 8 pages . Wide implication of this technology that is the use of monolayers has to be considered from the aspect of several issues that is their impact of the health of humans and the health of animals. The monolayers used in the reduction of evaporation will be made with the help of cetyl and stearyl alcohol along with derivates of fatty alcohol ethoxylates. These products are approved in accordance by the United States Food and Drug Administration

Efficient Market Hypothesis Essay

2741 words - 11 pages to evaluate the impact of the different standards on the financial statement. As only a limited group will be able to do this, the number of possible financers is reduced. Capital could become more expensive since in free market systems a broader supply of capital should result into lower prices for capital and the reverse effect is true. Further, accounting has difficulties to clearly measure performance and the value of assets. Therefore

When The Bubble Burst Essay

1539 words - 6 pages wipe out the banks toxic assets from the largest investment banks books. Michael Lewis a former bond trader for Soloman Brothers and financial writer for Bloomberg financial news insists the environment around the banking system and a lack of restriction on risky investments is to blame for the large number of toxic assets. (Lewis 262) The government thought this cash infusion was needed at the time to curb the market hysteria. In the age

Phase Diagram Essay

4456 words - 18 pages Introduction: Chemical equilibrium is a crucial topic in Chemistry. To represent and model equilibrium, the thermodynamic concept of Free energy is usually used. For a multi-component system the Gibbs free energy is a function of Pressure, Temperature and quantity (mass, moles) of each component. If one of these parameters is changed, a state change to a more energetically favorable state will occur. This state has the lowest free energy