Financial Service Assignment 2 Essay Example | Topics and Well Written Essays - 3000 words

Financial Service Assignment 2 - Essay Examplevital contributor towards the steadiness with involve to the financial structure along with being a significant element in the course of operations associated with the existent economy (Department of Mathematics, 2008).The structure of derivatives marketplace in the present times has been learnt to lure increased concentration next to the present environment related to fraud cases, financial crisis along with the collapse of few of the market participants. It was an evident fact that the recent financial catastrophe principally occurred because of the planned credit-linked securities which were not actually derivatives. This made the regulators and the policy developers think regarding intensification of the guidelines for boosting the lucidity and security for both the wide array of financial instruments as well as derivatives (Department of Mathematics, 2008).Derivatives are referred as financial takes the worth of which is consider ed as a resultant of certain decisive underlying assets. The underlying assets are believed to entail equity indices as well as equities, loans, exchange rates, commercial along with residential mortgages, bonds, interest rates, commodities and natural calamities exchangeable the hurricanes and the earthquakes. The derivative contracts appear or are available in numerous somas however, the most widespread forms entail forwards or futures, swaps and options (Acharya & et. al., 2009).A forward contract is referred to a certain contract in which the involved two parties comply to trade the definite underlying asset in the upcoming days at a specific point of time which has been ascertained earlier and at a preset price. Thus, the buyer complies today to purchase a definite form of asset in the upcoming days and the other party i.e. the seller complies to give delivery of that definite asset at the agreed and predetermined time. Futures are regarded as standardised form of forwards t hat are capable of being dealt in on the exchange