Question

Scope and importance of financial derivatives

Answer 1

Every investor in the financial area is affected by index fluctuations. Hence, risk management using index derivatives is of far more importance than risk management using individual security options. Moreover, Portfolio risk is dominated by the market risk, regardless of the composition of the portfolio.
The importance of derivatives in risk management. Futures, options, swaps and even forward contracts are viewed as the main forms of derivatives. ... Interest rate swaps are essential when it comes to risk management, as the contract can be used to hedge, speculate and manage risks.

Answer 2

The financial derivatives are important tools which are used by financial experts for increasing their assets and capital for business.

Explanation:

• A financial derivative are investment based techniques for setting the price or value of an asset. This can be observed by purchasing the specific currency on a certain rate of exchange then the monetary worth of the specific currency will change when the exchange rate of the currency is changed
• Derivatives are an important way of for managing the risks in the markets. They help in minimizing the risks by transferring the risk to the other person or company which is connected with the asset and is accepting the risk with the asset.
• Derivatives improve the efficiency of the markets with helping organisations with with access to certain derivatives and also for being able to handle the 'market risks', 'credit risks' and the 'liquidity risks' of the markets

To know more about financial derivatives

Difference between commodity derivative and financial derivative

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