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Financial instruments

Derivatives

5.1 Definition

As per IAS 39 Financial Instruments: Recognition and Measurement,
a derivative is a financial instrument that derives its value from
changes in the value of underlying items (typically from volatile
markets) e.g. shares, commodities, exchange rates and interest
rates.

5.2 Characteristics

 Its value changes in response to changes in an underlying item.

 It requires little or no initial investment.

 It is settled at a future date.

They also must be speculative in nature (the entity does not intend to
take delivery of or trade the underlying item).

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