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    Derivatives

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    The use of derivatives can be a great tool for institutions to increase profits or minimize risks. Nevertheless, the significant risks associated with derivatives suggests that derivatives must be actively managed. Derivatives can mitigate substantial losses should there be a significant increase or decrease in interest rates (Saunders & Cornett, 2011). In addition, these financial security instruments can help financial institutions to manage various types of risks (Saunders & Cornett, 2011)

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    a huge pool of investors and one of the financial instruments investors engage in is derivatives (UAE government, 2009).. ‘A derivative is a financial instrument which is a contract between two parties that derives its price from an underlying asset’. Usually, the worth of the principal asset changes continuously as time goes by. These underlying assets could be bonds, stocks or even interest rates. Derivatives are used for hedging and mitigating risks that arise from foreign exchange and commodity

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    In modern times, derivative products have become widely used tools to help investors, organizations and governments manage risk that could arise from factors like unstable commodity prices, changes in currency rates and interest rates in general. A derivative is an asset whose value is derived from the value of an underlying asset that is used to hedge a potentially risky outcome. These underlying assets include a wide range of effects, such as metals, commodities, energy sources and financial

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    of pricing certain financial derivatives, as well as hedging European options. A derivative is a security whose payoff is dependent on the fluctuating value of one or more underlying assets. Over the past decade or so derivatives have become very important financial instruments for the transfers of financial risk. Derivatives are generally used to hedge risk exposure or to speculate by taking on additional risk in the hope of exploiting this risk for profit. Derivatives can be traded directly on financial

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    Derivatives

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    Introduction to Derivatives At this point of the course, we have all been introduced to the basic investment instruments such as bonds and stocks. Now it’s time for us to make things a little bit more interesting. You may or may not have heard the term derivative, however it’s the most important term in the investment world today. Derivatives are a financial contract between two parties whose value is derived from an underlying asset. The underlying asset can be a financial instrument such as a stock

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    DERIVATIVES IN PAKISTAN In the year of 2001, the derivative products of equity of Pakistan were started in the Stock Exchange of Karachi. In the start of this launching, a single stock of futures was brought for introduction which was deliverable for just one month. It has almost nine years passed after that but this stock market is not considered as much as developed when it is compared to Indian market. The derivates related to finance, and which were traded in terms of exchange were initially

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    Function of Derivatives

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    Bodie, Marcus, and Kane (2011) noted derivatives to be securities that derive value from some other asset, such as a stock, index, or foreign exchange currency. Options, futures, and swaps are derivatives whose payoffs are dependent upon the movement, up or down, of another asset. Derivative securities can be used by both hedgers and speculators to gain profits on or protect the value of an underlying asset. Through various options strategies, hedgers and speculators can ensure payoff amounts

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    Classification of Derivatives: Derivatives are classified in terms of their payoffs and as exchange traded and over the counters. • Linear Derivatives: Linear Derivatives have linear payoff. E.g. Futures and forwards. • Non Linear Derivatives: Non Linear Derivatives have non linear payoffs. E.g. Options. • Exchange traded: These are standardized instruments and are backed by clearing house. So there is no default risk. E.g. Futures. • Over the counters: Over the counters are customized contracts

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    Derivatives Case Study

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    Derivative Futures and Financial Engineering Throughout financial markets worldwide the use of derivatives as a risk management methods have increased substantially over the last few decades. Derivatives are considered a financial instrument that derive their value from another financial asset or variable and as such they contrast from more commonly known financial instruments such as stocks and bonds. The main goal of derivatives is to protect investors against risk by allowing them to hedge

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    Since the early ‘90s, the electrical energy sector has undergone profound and dramatic changes. More and more countries moved towards the deregulation of their energy sectors, from a regulated and monopolistic industry to one were the market forces of supply and demand determine the unit price of electricity. The first case of energy sector deregulation in Europe was recorded when the United Kingdom with the Electricity Act of 1990 created the Electricity Pool for England and Wales. Norway soon followed

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