Answer to Question #223424 in Finance for ASHA JIMALE IBRAHI

Question

Explain the nature of derivative markets, Derivative instruments that trade in this market and how derivative contracts are created.  

Answer 1

Derivatives markets are financial instruments whose value are based on response to changes in commodity prices, interest rates, foreign exchange rates and credit risk or a reference point.

Derivative instruments include bonds, stocks and market indices.

Derivative Contracts are created by buying and selling on exchange of cash and services or over the counter between parties or swaps when parties exchange cash flows through borrowing of funds under interest rates.