Concept of financial derivative

    

Financial derivatives are financial instruments the price of which is determined by the value of another asset. Such an asset, ie the underlying asset, can in principle be any other product, such as a foreign currency, an interest rate, a share, an index or a commodity. Financial derivatives include various options, warrants, forward contracts, futures and currency and interest rate swaps. The transactions related to financial derivatives and the corresponding stocks of assets and liabilities are compiled separately, detached from underlying assets. Capital flows arising from financial derivatives are recorded as gross changes, so their flow data are broken down into assets and liabilities. Payment flows (cash flows) resulting from contracts entered into with non-residents and materialized during the reference period are recorded in gross changes. Such flows include, for example, premiums paid at inception of standardized derivative contracts, interim payments made during the life of the contracts (non-repayable margin payments) and net value payments made at the close of the contracts, as well as all net payments between the parties related to non standardized contracts.