Derivatives

• Overall


  is a contract between two parties which derives its value/price from an underlying asset.

  Financial instruments used to reduce the risk of exchange rate fluctuations when exporting

  It is comparable to having a fixed interest rate on a loan

  This helps them ot plan their finances because they will know exactly how much they will be repaying

  The disadvantage is they won’t benefit from falling interest rates if they occur

  If used unwisely, derivatives can be dangerous as the risks against which they are supposed ot protect