Meaning and Definition of Financial Derivatives

Financial derivatives are financial instruments that are linked to a specific financial instrument or indicator, and through which specific financial risks can be traded in financial markets in their own right.

The financial derivatives were also known as off-balance sheet instruments. The term derivative relates to a variety of ’financial instruments which include the following:

  1. Short-Term Debt Securities (Treasury Bills)
  2. Interest Rate
  3. Common Shares/Stock
  4. Bond and Debentures
  5. Stock Index Value (NSE Nifty)
  6. Foreign currency
  7. Other financial assets

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