Nobody downloaded yet

Derivatives and financial crisis - Assignment Example

Comments (0) Cite this document
Summary
The asset price fluctuations influence the price of the derivative. It is resorted by individual and companies to hedge risk and also to speculate. There are usually two types of…
Download full paperFile format: .doc, available for editing
GRAB THE BEST PAPER92.9% of users find it useful
Derivatives and financial crisis
Read TextPreview

Extract of sample
"Derivatives and financial crisis"

Download file to see previous pages Such types of derivatives are used based on the type of risk exposure i.e. liquidity, financial, exchange rate risks, etc (Chisholm, 2011).
Derivatives were used primarily to hedge risk, but over time people used it to make gains out of the price movements of the underlying assets. The purpose of using derivatives is incumbent on the investment objective. The price volatility of the underlying influenced various investor community to use derivative as a lucrative investment option. Earlier the use of derivatives was not popular, owing to its complexities it was not considered to be a feasible investment option. Over time, it was adopted by various investors to insure the various risks facing them. With various risk outcomes, the fluctuations in the price of the underlying assets made it volatile. Such price volatility attracted speculators, who engaged in the use of derivatives to earn profits. Speculations are done on both the up trends and down trends of the asset price movements. The impact of speculations is felt across the investor community i.e. the hedgers. Speculators gamble on the direction of the asset price movement. When a speculator feels that the price of the underlying asset will fall, he will short sell the stock or buy an option. When the price of the asset falls, he exercises the option or buys the underlying asset to make profit. Speculators leverage the vulnerability of the price movements of the asset to make gains. Though all types of derivatives cannot be used to speculate, but futures, options and swaps are lucrative avenues for speculators (Poitras, 2002).
From the inception, starting in 1970’s and continuing through the ‘80’s and ‘90’s, the financial market evolved and made it a riskier place for trading. The interest rate changes, bonds and stock markets witnessed phases of increased volatility. Owing to such evolution of risk, investors and managers of financial institutions became wary and resorted to ...Download file to see next pagesRead More
Cite this document
  • APA
  • MLA
  • CHICAGO
(“Derivatives and financial crisis Assignment Example | Topics and Well Written Essays - 2000 words”, n.d.)
Derivatives and financial crisis Assignment Example | Topics and Well Written Essays - 2000 words. Retrieved from https://studentshare.org/finance-accounting/1683337-derivatives-and-financial-crisis
(Derivatives and Financial Crisis Assignment Example | Topics and Well Written Essays - 2000 Words)
Derivatives and Financial Crisis Assignment Example | Topics and Well Written Essays - 2000 Words. https://studentshare.org/finance-accounting/1683337-derivatives-and-financial-crisis.
“Derivatives and Financial Crisis Assignment Example | Topics and Well Written Essays - 2000 Words”, n.d. https://studentshare.org/finance-accounting/1683337-derivatives-and-financial-crisis.
  • Cited: 0 times
Comments (0)
Click to create a comment or rate a document
CHECK THESE SAMPLES - THEY ALSO FIT YOUR TOPIC
Managing Financial Risks With Derivatives
...? Managing Financial Risks With Derivatives Still colons behind some headlines. Eliminate!! Dashes between number of chapters and chapter headlines in different places. Streamline. Contents 1 - Introduction 4 2- Research Question and Objectives 7 Research Question: 7 Research Objectives: 7 3- Literature Review 8 3.1 Uses of Derivative: 8 3.3 Risk Management Tools of Derivative and their role play: 19 3.4 What Is Financial Risk Management? 22 4- Research Methodology 25 4.1 Research Approach and Technique: 25 4.2 Source and Data Collection: 25 4.3 Credibility and Verification: 26 4.4 Research Limitations: 26 5- Findings and Analysis 28 5.1 Rio Tinto: 33 5.2...
46 Pages(11500 words)Thesis
Financial Upheavals. Financial crisis
...Financial Upheavals Financial crises are inevitable and seem to be a usual and reasonablyinvariant characteristic of such business cycle. The economic system of any country is subject to discrete business cycles that lie on the boom-depression continuum. The aftermaths of any such business cycle may vary from being modest to remorseless hinging upon its magnitude and continuance. History show that the American economy has moved through periods of boom, recession and recovery. The years 1837, 1893 and 1929 help retrace the occurrence of three major depressions in United States (Calomiris 2010). The downturns of 1857, 1873, and 1907 are also referred in the history books (Rothbard 2002). The America of...
10 Pages(2500 words)Essay
Financial Crisis
...? ECN353 Contents Contents 2 Creation of asset bubbles and large capital flows 4 Financial Crisis 7 Policies to address the effects of global financial crisis 10 Long term growth Prospects 11 Conclusion 12 References 14 Introduction The global financial crisis started to show its impacts from the middle of the year 2007. Economists consider the global financial crisis to be the worst scenario after the Great Depression of 1930s (Chari, Christiano and Kehoe, 2008, p. 1). Initially it was thought the crisis to be one of solidity and would affect only a small number of organizations. But...
15 Pages(3750 words)Essay
To what extent have OTC derivatives been a major factor in the global financial crisis
...? OTC Derivatives and the Global Financial Crisis: The underlying variable? The past 30 months or so have seen a major crisis in the global financial markets that has seen huge volatility in prices, the near collapse and actual collapse in some cases of a number of major banks and multi billion dollar rescue packages by governments to support the financial system. As a result a large number of commentators have sought to point the finger at various activities undertaken in the global financial markets. Derivatives are one. Warren Buffett notably called derivatives instruments “weapons of...
30 Pages(7500 words)Dissertation
Financial crisis
...?Running Head: FINANCIAL CRISES Financial Crises, types, causes and prevention of the of October 17, Table of Contents Title: Financial Crises, types, causes and prevention 1 Name of the Student: 1 Name of Institution: 1 October 17, 2012 1 1. Introduction 3 2) Types of Financial Crisis 3 3) Causes of Financial Crisis 7 4) Prevent Financial Crisis 9 4) Conclusions 10 References 11 1. Introduction Financial crisis is a term used to identify events and situations where an entity such as a bank, financial institutions, and the stock market...
8 Pages(2000 words)Term Paper
Financial services ( Derivatives )
...? Finance and Accounting Financial Services (Derivatives) Table of Contents Table of Contents 2 Inroduction 2 Bank and Companies Exposed to Losses 3 Risk of Derivative Contracts 4 Counterparty Credit Risk 4 Transparency Risk 5 Legal Risk 5 Credit Risk 5 Market Risk 6 Basis Risk 6 Benefits of Derivative Contracts 6 Conclusion 8 Reference 9 Inroduction A derivative contract is referred as a bilateral agreement which grants for payment to be made by one contracting party to the other. The sum of such payment is to be quantified at a future date which is based on index, the value of an asset or rate at that future date. The rate, asset or index, which decides...
7 Pages(1750 words)Essay
Risk Management and financial derivatives
...Word Count 2,499 words (excluding in-text citation) Risk Management and Financial Derivatives In view of the challenging business climate in the global arena, industries are confronted with myriad risks that pose substantial threat to their profitability. One of the industries that are highly exposed to these risks is the pharmaceutical industry. According to a study conducted by the Wharton School of University of Pennsylvania, over the past thirteen years, pharmaceutical companies are as much as 50% riskier than the overall Standard & Poor's (S&P) 500. This is primarily attributed to the nature of the industry wherein any events, either positive or negative, are magnified and deemed to have a...
11 Pages(2750 words)Essay
Financial crisis
...Financial Crisis The current financial crisis will be solved one day, but the situation following that may be most probably even worse. The current crisis is only a beginning. The reasons for the current crisis may not be due to the policies alone. Even though the American banking crisis is dangerous, the condition of global economy is more dangerous than the banking crisis. Many economists believe that the current recession may continue longer than anticipated. The financial institutions need to be blamed themselves for the current crisis. The crazy lending habits of...
4 Pages(1000 words)Research Paper
Financial derivatives
...Financial Derivatives Financial Derivatives Financial Derivatives are security contracts whose price or value is dependent to different underlying assets. They can be traded in financial markets. Derivatives are agreements between two or more groups whose value is determined by the fluctuation of the underlying assets. This research paper discusses how Financial Derivatives is used as an instrument to hedge financial risk such as foreign exchange and also for speculative purposes (Imf.org, 2014). Common underlying assets include currency exchange rates,...
3 Pages(750 words)Essay
Financial crisis
...Teacher Shadow banking in China Shadow banking in China is a financial system whereby non-bank financial intermediaries provide traditional financial services and banking functions to traditional commercial banks. In simpler terms, it meant that intermediaries called trust companies which are not allowed traditional banking functions such as receiving deposits and loan out money, can manage the money from commercial banks. The common transaction involving shadow banking are WMP or wealth management products which are really just savings deposits with higher annual return of a guaranteed 3%. Compared to the traditional savings deposit, this 3% is way higher which explains why a lot of...
2 Pages(500 words)Essay
sponsored ads
We use cookies to create the best experience for you. Keep on browsing if you are OK with that, or find out how to manage cookies.
Let us find you another Assignment on topic Derivatives and financial crisis for FREE!
Contact Us