30
Jun
Advantages Of Financial Derivatives. OBJECTIVES OF THE STUDY. There are a large number of simple derivatives like futures or forward contracts or swaps. Derivatives are a complex financial instruments whose value have been derived from the underlying asset. Reflect Perception of Market Participants 2.
Derivative enables business in reaching out to hard to trade assets and markets. The ability and chances to make huge and extreme profits is high in derivatives than incase of primary securities or mutual funds. Organizations with the application of interest rate swaps can obtain better interest rates than available in the current market. Some benefits are microeconomic. Derivatives instruments can be used to minimise risk. Derivative contracts helps to hedge the risk of high prices in the future.
Tension between those benefits and risks.
Advantages of Derivatives Since all transactions related to derivatives take place in future it provides individuals with better opportunities because an individual who want to short some stock for long time can do it only in futures or options hence the biggest benefit of this is that it gives numerous options to an investor or trader to execute all sorts of strategies. Using financial derivatives it is possible to speculate and take advantage of the variations presented by the prices of the underlying assets but it is also possible to manage and reduce the risks that an investment brings with it. Financial derivatives are often an efficient policy of the risk management as they are been used in modern. Organizations with the application of interest rate swaps can obtain better interest rates than available in the current market. Using derivatives can be an effective way for investors to hedge the risks they have incurred from purchasing other securities. Derivatives also offer other benefits like bringing liquidity to the market and encouraging short selling.