Important Points for IC 89 - Management Accounting Exam
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A derivative is a financial instrument or security, which derives its value from the value of underlying entities such as an asset, index, or interest rate-it has no intrinsic value in itself.
A derivative security is a contract which is written between two parties and the value of which is derived from the value of an underlying widely-held and easily marketable asset-either tangible things such as agricultural and other physical commodity, or currency or short term/long-term financial instrument or intangible things such as Commodity price index, Equity price index or bond price index.
Forward contract represents an agreement between two parties to exchange an asset for cash at a prdetermined future date called the settlement date for a price specified today.
A forward is a contract to buy or sell an underlying asset at some pre-decided future date at a price agreed upon today i.e. on the date of entering into the forward contract.
A Future is a contract to buy or sell the underlying asset for a price specified today at a pre-determined time.
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