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4. Overview of Derivatives Derivatives Options and Corporate Finance > Derivatives Free to share, print, make copies and changes. Get yours at www.boundless.com www.boundless.com/finance?campaign_content=book_192_section_120&campaign_term=Finance&utm_campaign=powerpoint&utm_medium=di rect&utm_source=boundless

5. Derivatives are broadly categorized by the relationship between the underlying asset and the derivative, the type of underlying asset, the market in which they trade, and their pay-off profile. The most common types of derivatives are forwards, futures, options, and swaps. The most common underlying assets include commodities, stocks, bonds, interest rates, and currencies. Derivatives allow investors to earn large returns from small movements in the underlying asset's price. Conversely, investors could lose large amounts if the price of the underlying moves against them significantly. Derivatives contracts can be either over-the-counter or exchange-traded. Overview of Derivatives Free to share, print, make copies and changes. Get yours at www.boundless.com www.boundless.com/finance/textbooks/boundless-finance-textbook/options-and-corporate-finance-16/derivatives-120/overview-of-derivatives-498- 5670?campaign_content=book_192_section_120&campaign_term=Finance&utm_campaign=powerpoint&utm_medium=direct&utm_source=boun dless World Wealth Vs. World Derivatives View on Boundless.com Options and Corporate Finance > Derivatives

6. Free to share, print, make copies and changes. Get yours at www.boundless.com Appendix

7. Key terms derivative A financial instrument whose value depends on the valuation of an underlying asset; such as a warrant, an option, etc. margin Collateral that the holder of a financial instrument has to deposit to cover some or all of the credit risk of their counterparty. notional Having descriptive value as opposed to a syntactic category. Free to share, print, make copies and changes. Get yours at www.boundless.com Options and Corporate Finance

8. World Wealth Vs. World Derivatives This graph illustrates total world wealth versus total notional value in derivatives contracts between 1998 and 2007. Free to share, print, make copies and changes. Get yours at www.boundless.com Wikipedia. "Total world wealth vs total world derivatives 1998-2007." Public domain http://en.wikipedia.org/wiki/File:Total_world_wealth_vs_total_world_derivatives_1998-2007.gif View on Boundless.comPublic domain http://en.wikipedia.org/wiki/File:Total_world_wealth_vs_total_world_derivatives_1998-2007.gifView on Boundless.com Options and Corporate Finance

9. Free to share, print, make copies and changes. Get yours at www.boundless.com Options and Corporate Finance Which of the following correctly defines a type of derivative? A) A forward is a standardized contract to buy or sell an asset at a specified future time. B) A forward is a non-standardized contract to buy or sell an asset at a specified future time. C) A swap is a contract where counterparties exchange cash flows of each party's finanical instrument. D) An over-the-counter derivative is one that is traded via specialized derivative exchanges.

10. Free to share, print, make copies and changes. Get yours at www.boundless.comwww.boundless.com Boundless - LO. "Boundless." CC BY-SA 3.0 http://www.boundless.com/CC BY-SA 3.0http://www.boundless.com/ Options and Corporate Finance Which of the following correctly defines a type of derivative? A) A forward is a standardized contract to buy or sell an asset at a specified future time. B) A forward is a non-standardized contract to buy or sell an asset at a specified future time. C) A swap is a contract where counterparties exchange cash flows of each party's finanical instrument. D) An over-the-counter derivative is one that is traded via specialized derivative exchanges.

11. Free to share, print, make copies and changes. Get yours at www.boundless.com Options and Corporate Finance Which of the following is a way derivatives are used by investors? A) To provide leverage. B) All of these answers. C) To speculate and make a profit. D) To obtain exposure to the underlying where it is not possible to trade in the underlying.

12. Free to share, print, make copies and changes. Get yours at www.boundless.comwww.boundless.com Boundless - LO. "Boundless." CC BY-SA 3.0 http://www.boundless.com/CC BY-SA 3.0http://www.boundless.com/ Options and Corporate Finance Which of the following is a way derivatives are used by investors? A) To provide leverage. B) All of these answers. C) To speculate and make a profit. D) To obtain exposure to the underlying where it is not possible to trade in the underlying.

13. Attribution Wikipedia. "Derivative (finance)." CC BY-SA 3.0 http://en.wikipedia.org/wiki/Derivative_(finance)CC BY-SA 3.0http://en.wikipedia.org/wiki/Derivative_(finance) Wikipedia. "Black–Scholes." CC BY-SA 3.0 http://en.wikipedia.org/wiki/Black%25E2%2580%2593ScholesCC BY-SA 3.0http://en.wikipedia.org/wiki/Black%25E2%2580%2593Scholes Wikipedia. "Futures contract." CC BY-SA 3.0 http://en.wikipedia.org/wiki/Futures_contractCC BY-SA 3.0http://en.wikipedia.org/wiki/Futures_contract Wikipedia. "Swap (finance)." CC BY-SA 3.0 http://en.wikipedia.org/wiki/Swap_(finance)CC BY-SA 3.0http://en.wikipedia.org/wiki/Swap_(finance) Wikipedia. "Forward contract." CC BY-SA 3.0 http://en.wikipedia.org/wiki/Forward_contractCC BY-SA 3.0http://en.wikipedia.org/wiki/Forward_contract Wiktionary. "margin." CC BY-SA 3.0 http://en.wiktionary.org/wiki/marginCC BY-SA 3.0http://en.wiktionary.org/wiki/margin Wikipedia. "derivative." CC BY-SA 3.0 http://en.wikipedia.org/wiki/derivativeCC BY-SA 3.0http://en.wikipedia.org/wiki/derivative Wiktionary. "notional." CC BY-SA 3.0 http://en.wiktionary.org/wiki/notionalCC BY-SA 3.0http://en.wiktionary.org/wiki/notional Free to share, print, make copies and changes. Get yours at www.boundless.com Options and Corporate Finance