Derivative Defined under Ind AS 109 | Financial Instruments Explained | What is a Derivative?

So, what exactly is a derivative? I am sure you hear names like options, futures, and swaps all the time, which are all types of derivative instruments. But how do I define a derivative according to Ind AS? Well, Ind AS states that a derivative has three main characteristics. First, it requires very little or almost no initial investment. This means that if I buy calls, puts, or futures, I only have to put up the margin, or pay a small premium for things like calls and puts, and I don't have to pay anything beyond that. Second, it will be settled on a future date. Every single derivative instrument has a specific settlement date in the future. Third, it has an underlying asset. As that underlying asset moves, the price of my derivative moves right along with it. In other words, the derivative's price fluctuates in accordance with the movement of the underlying. For example, if I hold a Reliance future, as the market price of Reliance shares goes up or down, the price of my future will rise and fall in the exact same way. If I find any instrument that possesses these three characteristics, I can definitively call it a derivative instrument. ---- A derivative is a financial instrument whose value depends on an underlying variable, requires minimal initial investment, and is settled in the future. A derivative is a financial instrument: Whose value changes in response to changes in an underlying variable, such as: Interest rate Foreign exchange rate Share price Commodity price Index or other variable Requires little or no initial investment Compared to other contracts that would respond similarly to market changes. Is settled at a future date The contract is settled later, not immediately. #IndAS #IndAS109 #FinancialInstruments #Derivatives #AccountingStandards #FinanceProfessionals #CorporateFinance #AccountingEducation #FinanceLearning #CAStudents #CMAStudents #FinanceConcepts #AccountingConcepts #FinancialReporting #Upskilling #ProfessionalDevelopment #CommerceStudents #AccountingClass #FinanceTraining #IndASLecture