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Chapter 3
Derivatives
5.1 Definition
As per IFRS 9 Financial Instruments, a derivative is a financial
instrument that derives its value from changes in the value of
underlying items (typically traded on 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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