Derivatives are said to be revenue neutral – if one side of a derivative agreement (such as a forward, an option, and others) makes profit, the other makes a loss. But derivatives are also said to be a boon for the world economy, contributing towards GDP growth and profitability of companies which use them for hedging. On the other hand, other derivatives such as mortgage backed securities and credit default swaps are blamed for contributing to the outbreak of the financial crisis of 2007.

Analyze and assess how the revenue neutrality of derivatives corresponds with how they help create value, and how they can be misused.

Answer rating: 100% (QA)

Introduction Derivatives are financial contracts whose returns are connected to or obtained from the performance of underlying assets such as currencies bonds and products Some of the most common deri... View the full answer