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6 Cards in this Set
- Front
- Back
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derivatives
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a security derives its value from the value or return of another asset
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Exchange traded derivatives
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Standardized and backed by a clearing house
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Forwards and swaps
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traded by dealers - OTC
OTC - largely unregulated markets default risk (when counterparty do not honor their commitment |
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Forwards
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one party agree to buy, one agree to sell
-specific price -specific date If asset increase, buyer gain |
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Futures
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Standardized and exchange traded forwards
required daily settlement of gains and losses |
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Swap
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one party agree to pay (floating) rate
One party agree to pay fixed rate of return |
