derivative
raghuanand (senior faculty) (31 Points)
21 June 2019
why is derivative not an asset in balance sheet
1 Replies
Allu Reddy
(student)
(329 Points)
Replied 22 June 2019
Since the derivative itself has no intrinsic value—its value comes only from the underlying asset—it is vulnerable to market sentiment and market risk. It is possible for supply and demand factors to cause a derivative's price and its liquidity to rise and fall, regardless of what is happening with the price of the underlying asset.
Derivatives can be used to hedge a position, speculate on the directional movement of an underlying asset, or give leverage to holdings. Being just a contract for certain period, its not included in assets.
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