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Derivatives could be used in risk management by hedging a position to protect against the risk of an adverse move in an asset. Hedging is the act of taking an offsetting position in a related security, which helps to mitigate against adverse price movements.
>to explore new investment opportunities:-primary security
like share and bonds are not sufficient to meet the growing needs of present
day investor. FD are the alternatives investment opportunities available to the
investment.
>to use as means of increasing profit;-FD r greatly use to
increasing the profit. fD provide limit loss and unlimited profit
>create
new instrument-using different derivative security the market participate
can create bybrid security and synthetics security.
>hedge risk-fd
has both of financial and business risk.it is drive from the underlying asset
with the purpose of to hedge reduce the risk arise from the movement of underlying asset price
> change he nature
of asset and labilities-it can be use to change the nature a/l as a way to
manage interest rate financial insinuation use swap to hedge against the risk
of change in market interest rate.
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