Derivatives play a key role in managing financial risk from "summary" of The Economics of Money, Banking and Financial Markets, eBook, Global Edition by Frederic S. Mishkin
Derivatives are financial instruments whose value is derived from the value of some underlying asset or variable, such as a commodity price, interest rate, or stock price. These instruments have become increasingly popular in recent years due to their ability to help firms and individuals manage financial risk. One of the key ways in which derivatives are used to manage risk is through hedging. Hedging involves using derivatives to offset the risk of adverse price movements in an underlying asset. For example, a company that is concerned about rising interest rates may use interest rate swaps to lock in a fixed rate of interest on its debt, thereby protecting itself fr...Similar Posts
Understand the difference between investing and speculation
Investing and speculation are often used interchangeably in the financial world, but they are actually two very different activ...
Remember that investing is a marathon, not a sprint
Investing is a long-term game. It's not about making a quick buck or trying to time the market perfectly. Instead, it's about h...
Pay off highinterest debts first
When it comes to managing your finances, one of the first steps you should take is to pay off any high-interest debts that you ...
Rational and irrational forces coexist in markets
In the tumultuous world of financial markets, one can observe a delicate dance between rational and irrational forces, each exe...
Coordination among central banks is crucial for maintaining financial stability
The stability of the financial system is of utmost importance for the functioning of the global economy. Central banks play a k...
The interests of developing countries must be taken into account in global decisionmaking
Global decision-making affects every corner of the globe, including developing countries. However, it is often the case that th...
Consider the impact of taxes on your investment returns
Taxes can significantly affect the returns on your investments. By being aware of the impact of taxes, you can make more inform...
Human oversight necessary in algorithm use
Algorithms are powerful tools that can automate complex tasks and make decisions quickly and efficiently. However, they are not...
Labor markets are affected by business cycles
Labor markets are influenced by the fluctuations in business cycles. During periods of economic expansion, businesses tend to i...
Regulation is necessary to manage the oil industry
Regulation plays a crucial role in managing the oil industry. The oil industry is a complex and highly competitive sector that ...