OPTIONS - FINANCIAL DERIVATIVES FOR MANAGING INTEREST RATE RISK

Dicevska, Snezana and Karadjova, Vera (2017) OPTIONS - FINANCIAL DERIVATIVES FOR MANAGING INTEREST RATE RISK. In: ITEMA 2017, Budapest Hungary.

Full text not available from this repository.

Abstract

Financial derivatives are financial instruments that cause major changes in financial markets. They appeared in order to protect the transactors from a certain form of market risk, but also with the intention of making profit. Financial derivatives are standardized contracts and their value depends on the price of the subject of the contract. Financial derivatives are actually contracts between the parties agree on that, in forming the price of the subject of trading,the participants in the transaction commit to act in a certain way in the future,, taking into consideration the anticipated relation of supply and demand. Thereby, the participants in their investment decisions incorporate the expected difference between the movements of the prices on the current market and their expectations for the term price and, using the difference between the two prices, make a profit or a loss. In the second half of the twentieth century there was an increased presence of financial derivatives in the financial markets. As a result of the accelerated pace of trade, primarily of the international trade, the need for managing risks on the financial markets is emphasized. Once the dangers are identified, the risk should be quantified and should be established limits and procedures for its control and monitoring. One of the instruments used to reduce the risk on the financial market are options. The option is a financial instrument - contract, which allows the purchase or sale of various financial instruments at a predetermined price, which is called an execution price until a certain future time. The option is considered as executed when its time has expired, or when in predicted timeframe its purchase or sale has been made. Interest rate options are used for protection against interest rate risk, i.e. the negative effects of changes in interest rates.These options are contracts that, on the basis of payment of a premium to the seller, gives the right to the buyer, but not the obligation, to give or to take a certain amount on loan in the course of a certain period and at a predetermined price. In Republic of Macedonia, trading with financial derivatives almost does not exist. The goal of the paper is to give a theoretical elaboration of the use of options as one of the instruments that can be used for managing interest rate risk, but also the additional option risk arising from the use of this instrument. Besides theoretical elaboration, the paper also has an intention to elaborate the preconditions for implementation of this financial derivative, and opportunities for its using on the financial market in Republic of Macedonia. Key words: Financial derivatives, financial market, options, interest rate risk

Item Type: Conference or Workshop Item (Paper)
Subjects: Scientific Fields (Frascati) > Social Sciences > Economics and Business
Divisions: Faculty of Tourism and Hospitality
Depositing User: Mr Bojan Sekulovski
Date Deposited: 20 Nov 2017 11:28
Last Modified: 13 May 2019 09:21
URI: http://eprints.uklo.edu.mk/id/eprint/1037

Actions (login required)

View Item View Item