The World"s Most Lucrative Derivatives - Forward Contracts That Will Never Lose Their Value
There is much talk today about financial derivatives and their impact on the current economy.
In a basic way, this article discusses what derivatives are and which of all derivatives are the most lucrative and valuable.
A Definition of Derivatives Rutledge and Bertram (1995) explain, "...
a derivative is a contractual relationship established by two (or more) parties where payment is based on (or "derived" from) some agreed-upon benchmark.
" So in short, a trade is made between two parties where the perceived value of one thing is derived from the perceived value of another thing.
A Few Examples of Derivatives For instance, a wheat farmer and a corn grower may agree to make a three-year deal to trade three bushels of wheat for two bushels of corn.
This is done to stabilize the value of the two products regardless of the relative supply and demand of each product.
Another example of a derivative is a contractual agreement between an oil producing nation like Saudi Arabia and an oil brokering company like Exxon-Mobil.
This time the contract is not based on the trade of two commodities; rather, one commodity, e.
g.
a barrel of oil, is valued against the exchange value of currency, e.
g.
the US Dollar.
For instance in 2008, the price of oil fluctuated between $40 and $145 per barrel.
As the price of the oil was rising in the first half the year, an oil brokering company like Exxon Mobil could have signed a long-term contractual agreement with Saudi Arabia to purchase the oil at $75 per barrel throughout the term of the contract.
This means even if the price went up to $100, Exxon Mobil would pay only $75 and, vice versa, if the price dipped to $35 per barrel, as it did in February 2009, Saudi Arabia would still receive $75 for the duration of the contract.
Another type of derivative is a credit swap.
These types of derivatives are tied to the mortgage crisis in the United States' housing market.
After making sub-prime loans to many private citizens, mortgage companies sold the loan contracts to investment brokers like Lehman Brothers who bundled them as investments and re-sold them to other investment firms like insurance conglomerate AIG.
Soon the paper value of the credit swap agreements outpaced the value of the investments themselves.
At the same time, thousands of home buyers began to default on the loans because of ballooning interest rates.
The misuse of this type of financial derivative is one major cause of the economic crisis we are now experiencing.
So, to recap, a derivative is a contractual relationship where the value of one commodity or service is derived from what another person or company will pay or give up for it.
However, as we can see in the case of credit swaps, not all derivatives or contractual agreements are wise investments and in fact, many investors are losing large amounts of money and financial net worth because of their failure to pay as promised.
The World's Most Valuable Derivative There is one unique type of derivative that will never fail or lose its value.
This type of contract is the soundest investment ever devised.
The world's most valuable derivative is you and every other human being who has ever lived on the earth.
For you derive your worth from God's opinion of you.
From the beginning of time, God, the creator of heaven and earth and you, made a unilateral contract with you and me and every other person from every nation and culture on earth.
That contract came by way of a promise to the first man and woman that He would send a redeemer to buy us back as his own.
The price he was willing to pay and has paid is the life of his own Son in exchange for our lives.
Jesus Christ, the Son of God, stepped down from his royal throne and stripped out of his royal clothes in order that he might sacrifice himself for you and me.
In doing so, God proved that you are the most valuable investment in the history of this world.
Even if all the human financial derivatives fail to pay as promised, there is one derivative that will never lose its value.
Your life has been deemed to have eternal value by the one who is the true judge of value and worth, the Lord God Almighty maker of all things.
No matter who you are or what you have done, He wants a personal relationship with you.
Understanding your true worth in God's sight is the most lucrative investment you can make in your life.
If you want to have a personal relationship with him and come to know your true value, simply speak the words and He will touch you where you are today.
In a basic way, this article discusses what derivatives are and which of all derivatives are the most lucrative and valuable.
A Definition of Derivatives Rutledge and Bertram (1995) explain, "...
a derivative is a contractual relationship established by two (or more) parties where payment is based on (or "derived" from) some agreed-upon benchmark.
" So in short, a trade is made between two parties where the perceived value of one thing is derived from the perceived value of another thing.
A Few Examples of Derivatives For instance, a wheat farmer and a corn grower may agree to make a three-year deal to trade three bushels of wheat for two bushels of corn.
This is done to stabilize the value of the two products regardless of the relative supply and demand of each product.
Another example of a derivative is a contractual agreement between an oil producing nation like Saudi Arabia and an oil brokering company like Exxon-Mobil.
This time the contract is not based on the trade of two commodities; rather, one commodity, e.
g.
a barrel of oil, is valued against the exchange value of currency, e.
g.
the US Dollar.
For instance in 2008, the price of oil fluctuated between $40 and $145 per barrel.
As the price of the oil was rising in the first half the year, an oil brokering company like Exxon Mobil could have signed a long-term contractual agreement with Saudi Arabia to purchase the oil at $75 per barrel throughout the term of the contract.
This means even if the price went up to $100, Exxon Mobil would pay only $75 and, vice versa, if the price dipped to $35 per barrel, as it did in February 2009, Saudi Arabia would still receive $75 for the duration of the contract.
Another type of derivative is a credit swap.
These types of derivatives are tied to the mortgage crisis in the United States' housing market.
After making sub-prime loans to many private citizens, mortgage companies sold the loan contracts to investment brokers like Lehman Brothers who bundled them as investments and re-sold them to other investment firms like insurance conglomerate AIG.
Soon the paper value of the credit swap agreements outpaced the value of the investments themselves.
At the same time, thousands of home buyers began to default on the loans because of ballooning interest rates.
The misuse of this type of financial derivative is one major cause of the economic crisis we are now experiencing.
So, to recap, a derivative is a contractual relationship where the value of one commodity or service is derived from what another person or company will pay or give up for it.
However, as we can see in the case of credit swaps, not all derivatives or contractual agreements are wise investments and in fact, many investors are losing large amounts of money and financial net worth because of their failure to pay as promised.
The World's Most Valuable Derivative There is one unique type of derivative that will never fail or lose its value.
This type of contract is the soundest investment ever devised.
The world's most valuable derivative is you and every other human being who has ever lived on the earth.
For you derive your worth from God's opinion of you.
From the beginning of time, God, the creator of heaven and earth and you, made a unilateral contract with you and me and every other person from every nation and culture on earth.
That contract came by way of a promise to the first man and woman that He would send a redeemer to buy us back as his own.
The price he was willing to pay and has paid is the life of his own Son in exchange for our lives.
Jesus Christ, the Son of God, stepped down from his royal throne and stripped out of his royal clothes in order that he might sacrifice himself for you and me.
In doing so, God proved that you are the most valuable investment in the history of this world.
Even if all the human financial derivatives fail to pay as promised, there is one derivative that will never lose its value.
Your life has been deemed to have eternal value by the one who is the true judge of value and worth, the Lord God Almighty maker of all things.
No matter who you are or what you have done, He wants a personal relationship with you.
Understanding your true worth in God's sight is the most lucrative investment you can make in your life.
If you want to have a personal relationship with him and come to know your true value, simply speak the words and He will touch you where you are today.
