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Chapter 3
5.3 Common examples of derivatives
Forwards – contract to buy or sell at a date in the future at a specific
price determined now (based on today’s prices).
Future – same as forward but an active market exists (forwards are
bespoke; futures all have the same characteristics).
Options – Option to buy or sell in the future at a price set now. Less
risky as do not need to go through with the option if it is loss making.
5.4 Accounting for derivatives
Derivatives are classified as FVPL.
Revalue to FV.
G/L to P/L.
If derivative makes a gain – show as a financial asset.
If derivative makes a loss – show as a financial liability.
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