MMP321 Lecture Notes - Lecture 9: Interest Rate Risk, Interest Rate Swap, Bitcoin
31 May 2021
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Document Summary
Derivatives are financial products that can be used as a risk management tool, these include managing interest rate risk and a funds exposure to changes in property values. In this topic we examine the different types of derivative products available to property funds and how they can be used as a risk management tool. What is a derivative & how are they used to manage risk: a derivative is a financial contract/security that derives its value from an underlying asset (e. g. stocks, bonds, gold, bitcoin, market index). He/she can fulfill the contract by giving the buyer enough money to buy the asset at the prevailing price. He/she can also give the buyer another derivative contract that offsets the value of the first. This makes derivatives much easier to trade than the asset itself sometimes. Derivatives can be thought of as a contractual bet" on underlying assets: a contract for difference (cfd) is a popular form of derivative trading.
