From the course: Cert Prep: CFA Exam Level 1
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Derivative markets basics
From the course: Cert Prep: CFA Exam Level 1
Derivative markets basics
- [Instructor] Derivatives can sound complex, but, at their core, they're simply contracts that derive value from another asset. And on the CFA exam, derivatives are highly testable, not just for how they work, but where and how they trade. In this video, we'll cover what a derivative is, the difference between exchange-traded and over-the-counter derivatives, and the implications for liquidity, pricing, and counterparty risk. So what is a derivative? A derivative is a financial instrument whose value depends on the value of an underlying asset. Common underlying assets include stocks, bonds, commodities, interest rates, market indices, currencies, all the usual suspects. Derivatives themselves include futures, forwards, options, and swaps. Each of these contracts can be used to hedge risk, speculate on price movements, or enhance returns, and all of them are critical in the financial markets. Unlike stocks or bonds…
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