Derivatives: Taking it in a Circle

Thread starter vantz
Start date Apr 8, 2010
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Circle Derivatives

In summary, derivatives are financial instruments used to manage risk, speculate on price movements, and generate returns. They work by creating a contract between two parties based on the future performance of an underlying asset. There are several types of derivatives, including options, futures, forwards, and swaps. However, they can be highly risky due to the unpredictability of asset performance and the use of leverage. Despite the risks, derivatives are widely used in the financial markets for hedging, speculation, and risk management purposes.

Apr 8, 2010

vantz

Hello,

How is

Taking the derivative on the top and bottom makes it go in circles

Thank you

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Apr 9, 2010

vela

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Try dividing both the top and bottom by n.

Related to Derivatives: Taking it in a Circle

1. What are derivatives?

Derivatives are financial instruments that derive their value from an underlying asset, such as stocks, bonds, commodities, or currencies. They can be used to manage risk, speculate on price movements, and generate returns.

2. How do derivatives work?

Derivatives work by creating a contract between two parties that specifies the terms of the underlying asset's future performance. This contract can be bought and sold, allowing investors to take a position on the asset's price without actually owning it.

3. What are the different types of derivatives?

There are several types of derivatives, including options, futures, forwards, and swaps. Options give the buyer the right, but not the obligation, to buy or sell an asset at a predetermined price. Futures and forwards are contracts to buy or sell an asset at a future date at a specified price. Swaps involve exchanging one asset for another, such as exchanging fixed-rate payments for variable-rate payments.

4. What are the risks associated with derivatives?

Derivatives can be highly risky, as they involve predicting the future performance of an underlying asset. There is a potential for large gains, but also for significant losses. Additionally, the use of leverage in derivatives trading can amplify the risks.

5. How are derivatives used in the financial markets?

Derivatives are widely used in the financial markets for various purposes, such as hedging against price fluctuations, speculating on market movements, and managing risk. They are also used by companies to mitigate risks associated with their business operations, such as currency exchange rate fluctuations.