Go Back   ManagementParadise.com | Management & Business Education Learning Platform PUBLISH / UPLOAD PROJECT OR DOWNLOAD REFERENCE PROJECT > Financial Management

FUTURE VALUE AND FINANCIAL RISK MANAGEMENT

Discuss FUTURE VALUE AND FINANCIAL RISK MANAGEMENT within the Financial Management forums, part of the PUBLISH / UPLOAD PROJECT OR DOWNLOAD REFERENCE PROJECT category; A financial derivative is a tool which derives its value from an underlying asset, where the asset can be anything ...

Reply

 

Thread Tools Display Modes
FUTURE VALUE AND FINANCIAL RISK MANAGEMENT
Old
 (1 (permalink))
Abhijeet S
abhishreshthaa is a splendid one to beholdabhishreshthaa is a splendid one to beholdabhishreshthaa is a splendid one to beholdabhishreshthaa is a splendid one to beholdabhishreshthaa is a splendid one to beholdabhishreshthaa is a splendid one to beholdabhishreshthaa is a splendid one to behold
 
abhishreshthaa
Operations Manager at Management Paradise
Management Paradise Guru
 
Status: Offline
Posts: 7,045
Join Date: May 2010
FUTURE VALUE AND FINANCIAL RISK MANAGEMENT - September 3rd, 2010

  • A financial derivative is a tool which derives its value from an underlying asset, where the asset can be anything that exists as a tradable entity .

  • This value is derived on the future expectation of the asset price movement to be experienced by the investors involved in the transaction of the particular asset.

  • This introduces a risk associated with the asset price movement.

  • This risk is calibrated in the form of price differentials and the observed value of a derivative derives itself from the expected future price of the asset.

  • Risk as an opportunity is used in the form of future expectation that creates a value of the derivative representing the risk.

  • The uncertainty of the future is quantified as a value that signifies the change in the price of an asset that is expected by the investor.

  • This process uses derivatives to protect profitability against price movements. It is a very interesting phenomenon that uncertain futures are put into values that can be traded on the secondary markets with a convergence of interest on the expected value on a future date.

  • This transforms risk into opportunities of generating profits by trading derivatives with a view on future expectations. But risk will always remain a risk as it cannot be reduced to any other form.

  • Derivatives, as risk management tools, can only spread or distribute the risk of price movements rather than reducing any risk that is associated with the future change in price of the underlying asset.

  • Hence, derivatives cannot be said to control risk but spread risk so that producers or consumers have the opportunity to secure their profits against possible negative price movements.


  • This poses the essential question that if derivatives secure profits of the producers and consumers than who bears the cost of a price change?

  • On the other side of a derivative transaction is the ‗speculator‘. Speculators bet money on the price change in the opposite direction as the producer or the consumer they are transacting with .

  • Therefore, speculators are looking to generate profit against a possible price movement. This is the ideological divide on the use of derivatives.

  • With the definition of this financial innovation in the form of derivatives, they are profit securing tools that can be exercised by producers or consumers to secure profits.
Advertisements



Help Others > Network > Grow


Work with us part time/full time as forum moderator. Email us your resume on careers @ managementparadise.com PLS PRESS THANKS BUTTON IF U LIKED MY POST.


To view links or images in signatures your post count must be 0 or greater. You currently have 0 posts.
Friends: (0)
Reply With Quote
Reply

Bookmarks

Tags
financial, future, management, risk
Related to FUTURE VALUE AND FINANCIAL RISK MANAGEMENT
 

Similar Threads

Thread Thread Starter Forum Replies Last Post
Financial-Risk-Management-in-Action rohini.r619 Marketing Management 1 November 25th, 2017 10:17 AM
FINANCIAL RISK MANAGEMENT HANDBOOK (FRM)) Abhijeet S Sell / Buy Notes, Products, Services etc. 0 August 19th, 2010 01:45 PM
Risk Management & Financial Institutions Priya Agarwal Miscellaneous Projects 4 September 2nd, 2009 08:39 PM
Financial Risk Management Abby General Talks 3 July 16th, 2008 08:27 PM
 


Thread Tools
Display Modes

Posting Rules
You may not post new threads
You may not post replies
You may not post attachments
You may not edit your posts

BB code is On
Smilies are On
[IMG] code is On
HTML code is On
Trackbacks are On
Pingbacks are On
Refbacks are Off


ManagementParadise.com is not responsible for the views and opinion of the posters. The posters and only posters shall be liable for any copyright infringement.



Search Engine Optimization by vBSEO ©2011, Crawlability, Inc.