Derivatives for Managing Risk in an Emerging Economy

We are living in a dynamic world. Thus widespread variations are originating recently in every sphere of life. Mostly financial disasters or risks can be seen in the tumultuous business operations in every organization. All business undertakings aspire to lessen such risks, derivative financial instruments are one of them that have proved a significant milestone in the area of financial innovation. Their usages assist firms in hedging and lessening risks to the maximum extent by tremendously impacting the shareholder’s wealth. That is why derivatives are called the kingpins of all business activities. Derivatives perform specific functions like managing risks with the help of various strategies like hedging, arbitraging and speculating, etc. Derivatives do price discovery with the help of future markets by providing information about future cash market prices. It is a media through which scattered and diverse views of future prices are gathered to make predictions about prices.