Use of financial derivative - Personal Blog

Use of financial derivative



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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