Part I $$ What are derivatives?

Derivatives have become an integral part of investment banking in recent years.

They are financial instruments that derive their value from an underlying asset,

such as commodities, stocks, bonds, or currencies. Investment banks use

derivatives for a wide range of purposes, including hedging, speculation, and

arbitrage. In this section, we will delve into the role of derivatives in investment

banking and explore the various ways they are used by banks to manage risk and

generate profits.

$2$

When it comes to investment banking, hedging strategies using derivatives are

crucial. These strategies are designed to reduce risk and protect investors from

market fluctuations.

In Part I please explain the types of derivatives and the hedging strategies using

derivatives. Additionally, what are the risks associated with derivatives trading?