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Why does the use of derivative contracts such as forward, futures, swaps and options bring to financial institutions?
The use of derivative contracts such as forward, futures, swaps and options will bring risks to financial institutions for the following reasons.

1. Price risk or market risk refers to the risk of financial derivatives arising from drastic price changes.

2. Credit risk or default risk refers to the losses that may be caused to the other party when one party fails to perform the contract in financial derivative transactions.

3. Off-balance-sheet risk refers to the risk that is not reflected in the balance sheet due to the change of the real asset-liability relationship of off-balance-sheet business.

4. Liquidity risk, including market liquidity risk and capital liquidity risk.

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