Definition of 'Spot Market'
1. A commodities or securities market in which goods are sold for cash and delivered immediately. Contracts bought and sold on these markets are immediately effective. 2. A futures transaction for which commodities can be reasonably expected to be delivered in one month or less. Though these goods may be bought and sold at spot prices, the goods in question are traded on a forward physical market.
1. The spot market is also called the "cash market" or "physical market", because prices are settled in cash on the spot at current market prices, as opposed to forward prices. 2. Crude oil is an example of a future that is sold at spot prices but its physical delivery occurs in one month or less.
Definition of 'Derivative'
A security whose price is dependent upon or derived from one or more underlying assets. The derivative itself is merely a contract between two or more parties. Its value is determined by fluctuations in the underlying asset. The most common underlying assets include stocks, bonds, commodities, currencies, interest rates and market indexes. Most derivatives are characterized by high leverage.
Futures contracts, forward contracts, options and swaps are the most common types of derivatives. Derivatives are contracts and can be used as an underlying asset. There are even derivatives based on weather data, such as the amount of rain or the number of sunny days in a particular region. Derivatives are generally used as an instrument to hedge risk, but can also be used for speculative purposes. For example, a European investor purchasing shares of an American company off of an American exchange (using U.S. dollars to do so) would be exposed to exchange-rate risk while holding that stock. To hedge this risk, the investor could purchase currency futures to lock in a specified exchange rate for the future stock sale and currency conversion back into Euros.
Barter System is that system in which goods are exchanged for goods. In ancient times when money was not invented trade as a whole was on barter system. This was possible only in a simple economy but after the development of economy, direct exchange of goods without the use of money, was not without defects. There were various defects in this system
A simple money economy ± ± ± ± ± money functions as a medium of exchange and as a store of value this allows the fish to be sold and the money to be used as the store of value plus money can solve a divisibility problem
A money economy with a financial system ± ± ± ± ± creates more consumption choices through time through opportunities to invest in financial assets as well as borrow the money from the sale of the fish can be invested as a bank fixed term deposit the fisher can also borrow to buy a bigger boat