1.

Introduction
Derivatives that are useful for risk management can reduce costs, improve returns, and allow
investors to handle risks with greater certainty and precision, although, when used for
speculative purposes, they can be very risky instruments, since they have a certain degree of
leverage and are often more volatile than the underlying instrument. This may mean that, as
markets in underlying assets move, the positions of speculative derivatives may move further
still, resulting in large fluctuations in gains and losses. Recently, attention has focused on
large losses and the need for good management controls when negotiating such instruments
has been underlined. A derivative contract assumes its value for the price of the underlying
item or item, for example a commodity, a financial asset or an index. The underlying asset
may be a physical asset, such as wheat, copper, or pork belly, where the price of the
derivatives is affected by expectations regarding the constraints or shortages to which future
supply and demand will be subject; or a financial product, such as shares, fixed income
securities, or simply cash balances. A financial derivative contract derives the future price for
that asset based on its current price (the spot price) and interest rates (the value of money over
time).

importance in Colombia of derivative financial instruments?

Over the last years the tax and accounting laws have had a big change, and with this
transition the world demands a global and a strategic approach in all the organizations, and
the risk control is the key for this approach; Financial Derivatives are instruments that allows
the company to anticipate to risk situations so they can mitigate the negative impacts that
they can made. These instruments are known as complex financial instruments, but all it takes
to fully understand them is to address them in a comprehensive way. Key Words: Financial
Instruments, Derivatives, Futures, Options, Swaps, Risk.

The international financial markets, are where they are negotiated and commercialized,
among others, the derived products objects of study in this project. Its main function is to
channel funds from individuals, organizations and governments that have saved funds, thanks
to spending less than what they have received, others with a shortage of funds, and who want
to spend more than they pay. This function can be seen schematically in the following
graphic:
Figure: Monetary Flows - Source: (Mishkin, 2012)

On the left are those who lend money, while on the right are those who borrow that money.
The main savers that lend money are families and companies with excess cash, which lend
this money to obtain a return for it. Businesses and families, as well as governments, are the
main borrowers of money in circulation, which they use to finance their investments. The
graph also shows that money reaches borrowers in two main ways; the direct route, in which
the borrowers borrow the money directly from the lenders, selling securities or securities (or
any other type of financial instrument). These financial instruments are rights for those who
buy them, and they are obligations for those who sell them.

Derivative financial instruments or contracts are of great importance, not only for
the commercial life of each individual in particular, but also could be applied to our
country or nation, the question would be in what kind of aspects, aspects such as
learning to handle the stock market because it does not work in the best way in our
country, it is not reliable neither for the Colombian population nor for foreign
investors to come to create to look for or invest in an economic entity since the
state does not offer them the better guarantees or insurance in case of falling in the
market, we are in a very unfavorable economic situation and very variable if we
apply correctly derivative financial instruments or contracts, we would have the
ability to deal with any crisis and we would be the ones who invest in other
countries but unfortunately we do not have the education or the opportunity to
implement them since the people that we direct or govern are not adequate to
represent or lead a nation, we are in a society which seems a jungle where only
the strongest or not strong survive the most dishonest we care about the individual
and not the common good, we should take advantage of this tool of derivative
financial instruments.

if in the financial and economic fields we work together things would march
differently, our investment power would be unequaled everything would go to
perfection, which does not mean that we would not have touched a global crisis but
we would have or would know how to cushion it, we would know how to handle
stocks, currencies and taxes.

The idea of ​using derivative financial instruments in transactions or commercial transactions

is to reduce or, as far as possible, avoid any type of financial risk that an entrepreneur may
face through his business. To carry out a practical use, it must be totally clear that "a
derivative financial instrument is a futures contract or a secondary value in which the owner
has the right or obligation to perform certain transactions with the principal financial
instrument after a certain period of time under predetermined conditions "(Akansha JANE,
2016) and in turn these financial instruments are classified into two types, the primary ones,
in which accounts receivable, payable, CDT'S, loans, stocks, bonds, are identified; securities
and the secondary ones, which are commonly known as derivatives, which are made up of
forward, futures, swaps and options.

When mentioning derivative financial instruments we are referring not only to financial
assets, whose price or value depends solely and exclusively on the behavior of an underlying
variable, which could be an intangible asset, an exchange rate, an interest rate, a indicator or
index, but also financial liabilities and equity instruments, since most companies have these.

Derivative financial instruments for a world like today, full of risks, scams and other traps to
lose money to unsuspecting investors, turns out to be a very useful tool. When a person thinks
about investing their money, it is clear that what they least want is to generate a significant
reduction in their capital, no matter how they have made their investment.
Derivative financial instruments are not known by many people and are not recognized as
they should be, for this the first thing we must ask ourselves is what are they for?
To give an answer One could say that its main usefulness is to cover financial risks, be it
currencies, interest rates, capital markets, commodities, etc.

An investor today putting it in the context of our country

Colombia, when initiating an international investment challenge or acquiring a
risk in the national market, always tries to secure its money with the means
that the same market offers. This is where we started to know the derivatives,
which can be found in different ways such as the ones written below taken from
a website of great renown in Colombia:
• Forward: It is a derivative formalized by a contract between two parties, tailored to your
needs to buy / sell a specific amount of a certain underlying at a future date, setting the basic
conditions of the derivative financial instrument on the date of execution, among them,
mainly the value, the delivery date of the underlying and the delivery method. The liquidation
of the instrument on the compliance date can occur through physical delivery of the
underlying or settlement of differences, depending on the underlying and the agreed delivery
method, the latter being modified by mutual agreement by the parties, during the term of the
instrument .

• Futures: Standardized contract regarding its date of

fulfillment, size or nominal value, the characteristics of the respective
underlying, the place and the form of delivery (in kind or cash). These
contracts are traded and are registered in stock exchanges or trading systems,
and are cleared and settled in a central counterparty risk chamber -CRCC-,
under which two parties are obliged to buy / sell an underlying at a future
date, to a value established at the time of the conclusion of the contract.

• Swaps: Contract between two parties that establishes the

bilateral obligation to exchange a series of flows, for a determined period of
time, on pre-established dates. Basic swaps are considered: the so-called
interest rate swaps "Interest Rate Swap -IRS-", the currency swaps
"Cross Currency Swap" -CCS-, or a combination of these two types.

• Options: Contracts that are established for the acquirer of

the right option, but not the obligation to buy or sell for the underlying,
depending on whether it is a 'call' option or a 'put' option, respectively, at
a certain value, called exercise price, on a previously established future
date, which corresponds to the expiration date.

https://actualicese.com/actualidad/2018/04/25/instrumentos-financieros-derivados-tipos-y-car
acteristicas/

Once we know and explain some of the models of derivative financial instruments, we
already have an idea of ​what they are for or what use they have for us as investors.