Introduction to Derivatives
What Are Derivative Instruments?
Derivatives are financial instruments whose value is based on changes in an underlying asset, liability, interest rate, exchange rate, commodity price, or other variable. Common derivatives include forwards, futures, options, and swaps.
- Forward contracts.
- Futures contracts.
- Options.
- Interest rate swaps.
- Currency swaps.
Note
All derivatives are generally recognized on the balance sheet at fair value.
Summary
Derivatives derive their value from underlying variables and are measured at fair value.