NISM Series XIII Common Derivatives Certification Exam Notes
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Historical Emergence: Initially used for commodity price hedging; financial derivatives became prominent post-1970.
Market Growth: By the 1990s, financial derivatives accounted for two-thirds of total derivative transactions.
Risk Management Approaches: Speculation (taking risk), hedging (locking in return), insurance (eliminating negative return with options), and diversification (reducing risk per unit return).
Hedging Risk Exposure: Contracts offset losses in underlying assets.
Price Discovery: Derivative prices help determine expected future spot prices.
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