Derivative financial instruments—

According to the expectation of the price trend of financial assets, such as currency interest rate or debt instrument price, foreign exchange rate, stock price or stock index, commodity futures price, etc., the financial products with their own value are estimated.

Derivative financial instruments refer to new financial instruments derived from traditional financial instruments. Stock futures contracts, stock index futures contracts, option contracts and bond futures contracts are all derivative financial instruments.

The main functions of derivative financial instruments are:

Promoting the stability and development of financial market is conducive to speeding up the transmission of economic information, and its price formation is conducive to the rational allocation of resources and the effective flow of funds, and can also enhance the national financial macro-control ability. It can disperse and transfer risks and improve the economic efficiency of financial markets.

Basic characteristics of derivative financial instruments

1, intertemporal transaction

2. Leverage effect

3. Uncertainty and high risk

4. Hedging and speculative arbitrage

Classification of derivative financial instruments

(a) according to the type of basic tools:

1, stock derivatives

2. Currency derivatives

3. Interest rate derivatives

(2) According to the characteristics of risk and return:

Symmetric type and asymmetric type

(3) According to the transaction mode and characteristics:

Financial forward contracts, financial futures, financial options and financial swaps

Functions of derivative financial instruments

1. Speculative profit

Step 2 hedge

For derivative financial instruments that are not recognized in the balance sheet or have been measured at cost (excluding hedging instruments), they shall be measured at fair value on the first implementation date, and the retained earnings shall be adjusted.

As for effective hedging instruments, I found these-"Hedging effectiveness refers to the extent to which the fair value or cash flow changes of hedging instruments can offset the fair value or cash flow changes of hedged items caused by hedging risks."

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Let me know when you have a definite answer:)