During the few last decades there were happening some important facts in terms of finance. One of the most important growth and development was in derivatives.Derivatives are “specialized contracts which signify an agreement or an option to buy or sell the underlying asset of the derivate up to a certain time in the future at a prearranged price, theexercise price.”
There are different types of derivatives like: Financial derivatives: instruments, currency, share price index, equity shares, etc. For example a currency derivative gives the possibilityto buy or sell a specific amount of any currency during a certain period with an establish exchange rate. And Commodities derivates: coffee, wheat, pepper, cotton, gold, silver, precious stone, etc.Some times people can be confused about how are managed the prices of the derivative. “The derivatives derived from another variable, they have no value of their own… They derive their value from thevalue of some other asset, which is known as the underlying… and the value of the contract depends on the expiry period and also on the price of the underlying asset”.
The biggest problem is thatnobody knows when and how much those prices are going to change and “can attempt to profit by trading on expectations about prices in the future”, it is called speculation.
In the 1990s crises theprices didn’t take the expected direction and that affected a lot of markets, for example: “Gibson Greetings and Procter & Gamble were shaken by immense losses on derivatives speculations in thatdecade, while Orange County, Calif. was forced to file for bankruptcy as a result of its treasurer’s failed derivatives bets”. That happened because they had unusual and leveraged derivatives, so lowchanges in prices can end in a high volatility.
Nowadays those derivative investments haven’t decrease, what is happening is that there was a change in its manage, “many derivatives contracts are...