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1) Why a company can apply many type of derivative instrument ? 2) Regarding the exchange...

1) Why a company can apply many type of derivative instrument ?
2) Regarding the exchange rate and interest rate fluctuation, why an unexpected bariation affect company operations significantly ?


( 1 or 2 sentences enough for each ) Thank You
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Answer #1

1) Four most common examples of derivative instruments are Forwards, Futures, Options and Swaps. Each contract is custom designed, and hence is unique in terms of contract size, expiration date and the asset type and quality. A company can use the derivative instrument for the following purpose:

  1. Hedging
  2. Speculation
  3. arbitrage


I can only answer 1 question at a time, so I am answering only question 1. Please do rate me and mention doubts, if any, in the comments section.

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