The main benefit of using derivatives is that they allow the transfer of risks.

Hedging is a risk management strategy designed to reduce or offset risks. In simple words, hedging is used to reduce losses suffered by banks, corporations, or even individuals.

The history of derivatives is a lot longer than most people think.

Hedging is the art of reducing financial risk by entering into a transaction that will protect against loss through a compensatory price movement. It offers a way to minimize or eliminate price risk.

A bond is a negotiable debt instrument that is issued by the issuer for a fixed period of time. The issuer periodically pay interest (coupon) and the principal amount is repaid at maturity.

Basel III is a comprehensive set of reform measures, developed by the Basel Committee on Banking Supervision, to strengthen the regulation, supervision and risk management of the banking sector.

Basel II was initially published in June 2004. Its intention was to revise the Basel I standards governing the capital adequacy of banks. Banks need to hold capital to guard against the financial and operational risks they face.

Market risk is the risk of losses in on and off-balancesheet positions arising from movements in market prices.

The “International convergence of capital measurement and capital standards”, known as Basel I, was mainly focused on credit risk.

The Basel Accords is a set of recommendations for regulations in the banking industry, issued by the Basel Committee on Banking Supervision (BCBS).