Foundations
Market Participants and Uses
Who uses derivatives (dealers, corporates, investors and banks), why they use them, and how large the market is.
Introductory7 pages
1Market Participants
- IntroductoryDealers and BrokersIn OTC interest rate swaps, dealers become their customers' counterparties, and trades between dealers are sometimes arranged by brokers.
- IntroductoryHow Corporates Use DerivativesHypothetical Company X receives USD 1 million of export proceeds. An FX forward at 150 yen per dollar fixes the amount at 150 million yen, whatever the rate.
- IntroductoryHow Institutional Investors Use DerivativesCurrency hedging prevents losses from a stronger yen but gives up gains from a weaker yen, and it carries a hedging cost from the rate gap.
- IntroductoryHow Regional Banks Use DerivativesA bank that funds fixed-rate loans with floating-rate deposits can keep its margin by paying fixed in an interest rate swap, if deposit rates track the benchmark rate.
- IntroductoryHow Hedge Funds Use DerivativesA purchase of 100 million yen of equity index futures (hypothetical) gains 10 million yen if the index rises 10% and loses the same amount if it falls.
2Uses and Market Size
- IntroductoryHedging, Speculation and ArbitrageFor the same price move, the gains and losses on stocks and futures offset each other under a hedge, while speculation produces a profit or a loss depending on whether the view proves right.
- IntroductoryMarket Size Statistics (BIS Surveys)The semiannual Regular Derivatives Market Statistics cover amounts outstanding, and the triennial Central Bank Survey covers turnover and amounts outstanding.