CFM13110 - Understanding corporate finance: derivatives: types of derivative

Four basic types

Derivatives can be seen as falling into four basic types:

• forward contracts (CFM13140)
• futures (CFM13160)
• options (CFM13190)
• swaps (CFM13230).

These basic building blocks can be combined in different ways to create a myriad of derivative contracts. They can also be combined with debt instruments or other financial instruments. These arrangements can appear very complicated. But once the concepts behind the basic derivative contracts and why companies use them are understood, you will find you are able to analyse any novel or complex structures you may meet.