RMI-2302 Lecture Notes - Lecture 10: Orange County, California, Warren Buffett, Barings Bank
Document Summary
Learning objectives: define derivatives and financial risk, explain how derivatives can generate risk and reward, describe the problems with regulating derivatives. Background: what is a derivative, a derivative is a contract between two or more parties whose value is based on an agreed-upon underlying financial asset, index or security, common underlying instruments include, bonds, commodities, currencies. How are they used: derivatives can be used as a hedge, they can be used to speculate. Why use them: legitimate hedging function- they are a risk management tool, amplify (leverage) returns (both good and bad, all about risk/reward, help make money move faster, help make money work harder. Learning objectives: describe the causes of poverty, explain possible government roles in alleviating poverty. World poverty & economics: our insatiable wants, our wants and desires spur economic activity, needs: food, water, shelter, clothing, wants: entertainment, communication, variety, snacks, our limited means unlimited, resources are scarce, technology, labor and capital.