18. Derivatives

derivatives

are financial instruments whose prices are dependent upon underlying assets such as stocks, bonds, commodities, currencies, interest rates and market indices.

future

is a contract agreement to buy or sell a security, commodity or financial instrument at a predetermined price, at a predetermined point in the future

option

offers the buyer the right, but not the obligation, to buy (call option) or sell (put option) an asset at an agreed-upon price (the strike price), either during a certain period of time, or no a specific date.

commodities

are raw materials or primary products such as metals, cereals, coffee etc. that are traded on special market.

hedging

means making contracts to buy or sell commodities or financial assets in the future at a pre-arranged price, as a protection against price changes.

speculation

the act of buying something hoping that its value will increase and then selling at this higher price in order to make a profit

currency swap

an agreement between two organizations to change the amount of money lent or the interest payments of a loan made in one currency for the same part of a loan in another currency

an interest rate swap

an agreement between two companies to exchange interest payments on a particular amount, often in order to protect against future changes in interest rates. For example floating rate loan for a fixed interest rate loan.

invest(investment)

to put money, effort, time, etc. into something to make a profit or get an advantage

speculate

to buy and sell in the hope that the value of what you buy will increase and that it can then be sold at a higher price in order to make a profit

gamble(gambling)

a risk that might result in loss of money or failure. For example in a game or on a horse race