Derivatives are made up of four types or a combination of more than one.
- Forward Contracts - An Over the Counter (OTC) contract between two parties.
- Futures Contracts - Future contracts are forward contracts that trade on regulated markets. The advantage is liquidity. The disadvantage is the terms of the contract have to be standardized.
- Swaps - Swaps are portfolios of forward contracts.
- Options - Option represents the right, not obligation, to buy (call) or sell (put) an asset at a prearranged price.
“The best way to predict the future is to create it.” ~ Peter Drucker
Financial Instruments Standards: A Guide on IAS 32, IAS 39 and IFRS 7
Financial Accounting: The Impact on Decision Makers (with 2009 IFRS Update)