derivative and swap

Jun 21st, 2015
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In finance, a derivative is a financial instrument whose value depends on other, more basic, underlying variables[1]. Such variables can be the price of another financial instrument (the underlying asset[2]), interest rates, volatilities, indices, etc. There are many kinds of derivatives, with the most common being swaps, futures, and options.

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Infinance, aderivativeis a financial instrument whose value depends on other, more basic, underlying variables[1]. Such variables can be the price of another financial instrument (theunderlying asset[2]), interest rates, volatilities, indices, etc. There are many kinds of derivatives, with the most common beingswaps,futures, andoptions. Derivatives are a form ofalternative investment.A derivative is not a stand-aloneasset, since it has no value of its own. However, more common types of derivatives have beentraded onmarketsbefore their expiration date as if they were assets.Among the oldest of these are rice futures, which have been traded on theDojima Rice Exchangesince the eighteenth century.[3]Derivatives are usually broadly categorized by:the relationship between the underlying asset and the derivative (e.g.,forward,option,swap);the type of underlying asset (e.g.,equity derivatives,foreign exchange derivatives,interest rate derivatives, commodity derivatives orcredit derivatives);the market in which they trade (e.g., exchange-traded orover-the-counter); andtheir pay-off profile.In finance, aswapis aderivativein whichcounterpartiesexchangecertain benefits of one party'sfinancial instrumentfor those of the other party's financial instrument. The benefits in question depend on the type of financial instruments involved. For example, in the case of a swap involving twobonds, the benefits in question c

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