What is a derivative financial instrument? Provide some examples.
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What is a derivative financial instrument? Provide some examples.
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Derivative financial instruments have been defined as instruments which create rights and obligations that have the effect of transferring one or more of the financial risks inherent in an underlying primary financial instrument and the value of the contract normally reflects changes in the value of the underlying financial instrument International Accounting Standards Committee Exposure Draft 40 Financial Instruments This is consistent with the description provided at paragraph AG 16 of AASB 132 which states Derivative financial instruments create rights and obligations that have the effect of transferring between the parties to the instrument one or more of the financial risks inherent in an underlying primary financial instrument On inception derivative financial instruments give one party a contractual right to exchange financial assets or financial liabilities with another party under conditions that are potentially favourable or a contractual obligation ...View the full answer
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