Definition, classification and use of derivative financial instruments

Abstract

The purpose of the research is to improve the definition and classification of derivative financial instruments in order to improve of operations with them. There were clarified the definition of financial derivatives. There were found differences of financial derivatives with derivative securities, financial instruments and derivatives. There were identified errors in the classification of derivatives. There were shown how we can use of financial derivatives to avoid financial risks. As the derivative financial instrument is to be understood fixed-term contract or a secondary security, according to which the holder has the right or takesthe obligation after a certain period of time on a pre-agreed conditions to carry out certain operations on contract with the underlying financial instrument. Derivative financial instruments are secondary financial instruments and include exchange and OTC contracts and derivative securities. The concept of "derivatives" is really wider then a derivative financial instrument. A commodity derivative should be named price derivative, because with its help of the risks of changes of commodity prices are distributed. At the base of financial derivatives can be a financial assets and liability or equity securities.