DERIVATIVES PROFESSIONAL ENGLISH IN USE FOR FINANCE

 

PROFESSIONAL ENGLISH IN USE FOR FINANCE 35. DERIVATIVES

 

A Options Derivatives are financial products whose value depends on – or is derived from – another financial product, such as a stock, a stock market index, or interest rate payments. They can be used to manage the risks associated with securities, to protect against fluctuations in value, or to speculate. The main kinds of derivatives are options and swaps. B In-the-money and out-of-the-money Selling or writing options contracts involves the obligation either to deliver or to buy assets, if the buyer exercises the option – chooses to make the trade. For this the seller (writer) receives a fee called premium from the buyer. But writers of options do not expect them to be exercised. C Warrants and swaps Some companies issue warrants which, like options, give the right, but not the obligation, to buy stocks in the future at a particular price, probably higher than the current market price. They are usually issued along with bonds, but they can generally be detached from the bonds and traded separately.   EXERCISES 35.1 Match the two parts of the sentences. Look at A opposite to help you. 1 The price of a derivative always depends on 2 Options can be used to hedge against 35.2 Choose the correct endings for the sentences. Some sentences have one than one possible ending. Look at A and B opposite to help you. 1 If you expect the price of a stock to rise, you can a buy a call option. b sell a call option. c buy a put option. d sell a put option. 2 If you expect the price of a stock to fall, you can a buy a call option. b sell a call option. c buy a put option. d sell a put option. 35.3 Complete the definitions. Look at A, B and C opposite to help you. 35.4 Complete these sentences using words from A, B and C opposite. 1 If your put option is out-of-money, the seller will gain the _____________. 2 You only exercise a call option if he market price is higher than the _____________.

 

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