Derivatives

MK, Unit 18

Watch the video and take notes

What is a derivative? What is the underlying? How can derivatives be used? Why are they dangerous? What are the 4 types of derivatives?

https://www.youtube.com/watch?v=yTxxSTXg404 (kanjohvideo: Introduction to Financial Derivatives)

Make slides for a presentation on derivatives with the help of the reading on the handout.

Include the following topics:

Definition Where are they traded? What are they used for? Types of derivatives

Possible slides:

Definition

derivative: financial instruments whose price is derived from / dependent upon the value of an underlying asset.

derive (derives, deriving, derived): to obtain sg from sg else

When buying/selling a derivative you buy/sell the right to do something (buy a commodity, pay in a different currency, etc.)

Traded

Over-the-counter (OTC): bigger, less safe

Stock exchanges: smaller, more secure due to clearing houses

Used for:

hedging: protection against price changes (“insurance”)

speculation: buying or selling assets, hoping to make a profit in the future (“betting”)

“Financial weapons of mass destruction”? (Warren Buffett)

Main types of derivatives:

futures forwards options swaps

Watch and take notes

Futures contracts https://www.youtube.com/watch?v=FLGRPY

AtReo (graphitishow: What are Derivatives?)

Now fill in the gaps on your handout