DERIVATIVES MARKETS Assignment Example | Topics and Well Written Essays - 1750 words

DERIVATIVES MARKETS - Assignment ExampleSince the securities ar listed and traded in the stock exchange, the indirect commercialize is as well called the stock market. In primary market, companies move with investors directly while in the secondary market investors interact with themselves. In both cases, the capital market intermediaries play an important role .The secondary market, based on all available information, determines the value and risk of the issued securities, it provides useful signals to both listed companies and investors to act in the primary markets. The secondary market may also include the everywhere the counter market and the differentials market. In the stock market share prices are determined by the demand and supply forces. On the other hand, in the over the counter market prices are negotiated between the buyer and the seller. The derivatives market deals in futures and options. In the derivatives markets, securities or portfolios of securities are t raded for future delivery. In case of options, the future delivery is conditional as the buyer has a honorable to exercise or not to exercise the option. The derivatives market and my proposed derivative product The emergence of new markets for derivatives much(prenominal) as forwards and futures can be traced back to the willingness of risk adverse economic agents to protect themselves against uncertainties occurring from price fluctuations in sundry(a) asset categories. Naturally, financial markets are very volatile. Through derivative products, however, it is possible to amply or partially transfer price risks by locking in prices of assets. By doing so derivative products reduce the impact of fluctuations in prices of assets on the cash flow and profitability situation of risk loath investors (Morrison and Winston 34). The derivative instruments are in use by all business sections, for instance, corporates, SMEs, financial institutions, banks and retail investors. My stri ke for this derivative is the ability to trade while conserving the environment through the hampering of the big problem of global calefacient which is getting worse as firms continue to produce. The duty is also focused on trading coulomb credits with the aim of controlling or reducing pollutants produced from business activities of firms. Therefore, the central driver of atomic number 6 emissions trading would be the impact on the climate and the degradation of the environment as a result of emissions of various gases. The immaturity of this market of derivatives also gives hope that in that respect is a growth potential for this business. Currently there are smaller numbers of firms that offer such certificates. An appropriate pricing model for derivatives on the coke emission certificates is certainly the first step in coming up with the derivative there is need to investigate the price dynamics. Product Design and Specifications The proposed derivative is a futures contra ct. Via the American Climate Exchange (ACX) carbon derivatives will be based upon 3 types of carbon related units. The following table gives an overview of my product in terms of price, quantity, unit of underlying asset, maturity date, delivery policy, margin requirement and daily settlement and achievement costs. Type Carbon Emission Derivation futures contract Trading Units 1000 carbon dioxide EUA valuation accounts, with each allowance allowing 1 tonne of carbon dioxide equivalent gas tokenish trading 1 lot chastise Price Intervals Quotation US dollar per metric tonne Minimum Tick $ 0.01 per tonne Minimum price flux $0.01