general awareness

 Definitions of Basic Derivatives There are various types of derivatives traded on exchanges across the world. They range from the very simple to the most complex products. The following are the three basic forms of derivatives, which are the building blocks for many complex derivatives instruments (the latter are beyond the scope of this book): · Forwards · Futures · Options Knowledge of these instruments is necessary in order to understand the basics of derivatives. We shall now discuss each of them in detail. Forwards A forward contract or simply aforward is a contract between two parties to buy or sell an asset at a certain future date for a certain price that is pre-decided on the date of the contract. The future date is referred to as expiry date and the pre-decided price is referred to as Forward Price. It may be noted that Forwards are private contracts and their terms are determined by the parties involved. A forward is thus an agreement between two parties in which one pa...