Derivatives are contracts between two or more parties whose values are based on an agreed-upon underlying financial asset.

Required:

Identify and explain briefly the types of derivatives in a financial system.(5marks)

b. Off-balance sheet items is a term for assets or liabilities that do not appear on a bank's balance sheet.

Required:

Within the context of off-balance-sheet business, explain direct credit substitutes, trade- and performance-related items and any differences between these items.(5 marks)