Derivate Financiare

Financial instruments whose values are derived from the value of an underlying asset.

Are used to fulfill two different management objectives: speculation and hedging.

Speculation: if the financial manager of a company purchase it in order to take positions in expectation of profit.

Hedging: if the financial manager of a company purchase it in order to reduce the risks associated with the everyday management of corporate cash flow.

Permit firms to achieve payoffs that they would not be able to achieve without derivatives, or could achieve only at greater cost.

Hedge risks that otherwise would not be possible to hedge.

Make underlying markets more efficient.

Reduce volatility of stock returns.

Minimize earnings volatility.

Reduce tax liabilities.

Motivate management.

The spot contract is an agreement to buy or to sell an asset today.

The forward contract is an agreement to buy or to sell an asset at a certain future time for a certain price.

The futures contract is an standardized agreement to buy or to sell an asset at a certain time in the futures at a certain price.