The concept of risk is at the heart of investment management. Financial analysts and portfolio mangers continually identify measure and mange risk. In a simple world where only stocks and bonds exist, the only risks are the fluctuations associated with market values and the potential for a creditor to default.
One way to reduce risk is to use insurance. The financial markets have created their own way of offering insurance against financial loss in the form of contracts called derivatives.
A derivative is a financial instrument that offers a return based on the return of some other underlying asset.
A derivative contract initiates on certain date and terminates on later dale.
TYPES OF DERIVATIVES
Derivative contracts can be classified into two general categories:
(1) Forward commitments and
(2) Contingent claims.
THE PURPOSE OF DERIVATIVE MARKETS
Perhaps the most important purpose of derivative markets is risk management. Often this process is described as hedging, which generally refers is the process called speculation.
All one needs to hedge or speculate is a party that mines gold could hedge the future sale of gold by entering into a derivative transaction with a company that manufactures jewelry. Both of these companies are hedgers, seeking to avoid the uncertainty of future gold prices by locking in a price for a future transaction. The mining corporation has concerns about a price decrease, and the jewelry manufacturer is worried about a price increase.
Bullion Exchanges is a well known Bullion Seller located in the heart of New York City's Diamond District.
ReplyDeleteBullion Exchanges have a massive inventory of items including, precious metals that range from the popular gold and silver to platinum & palladium.
They are offering a wide selection of products appealing to first time shoppers and the seasoned collectors.