 So we are continuing with the new topic we started, that is derivative, it's going to be a long topic because it's one of the main part of our risk management course. So we'll be spending a lot of time on it. So we're building how it is related and how it's going to work. Today we'll be learning some key terms that are essential for learning of the derivatives. The main four types of derivative contracts. Forward, they have definitely called forward contracts, but we'll be using the terms forwards, futures. We have told it's not about the time to come, it's specifically a name of a derivative. Then we have options and we have swaps and few other extensions of these, but these are the main areas which will be spending time. And we have told you earlier as well that it means that forward will be applicable on many underlines, future will be applied to many underlines similarly for the rest. All derivative contracts specify four key terms. Our understanding is that if these four key terms exist, then a proper derivative will exist and our implication will come. That is underlying, we'll talk about all of these but just make sure we recall them. Underline, size and price, expiration date and settlement. If these four are there, then a complete derivative will exist which will be utilised and beneficial for our purpose. And we have also said earlier that derivative has no value or self, it's based on underline. So what is underline? Underline is that instrument, that asset, that financial asset which it will base. So the value of derivative will also be based on this, the link of derivative will also be based on this. Derivatives are constructed based on underline which is specified in the contract. It will be written in the contract that what is this underline. Originally all derivatives were based on tangible assets. First, the fixed asset which had a tangible existence like weight, gold, they were based on these. But as the time is passing, there is evolution in it. So now we have outcome based derivatives as well as weather and multiple other options are coming in the stream. Examples of underline. We are talking about sample purposes and this list is not complete. It's not exhaustive, it's to be continued and many more. But their understanding will give you an idea of what are the kind of derivatives which we are talking about. So they could be on agriculture products such as wheat, rice. For example, a farmer who makes something bad, he is at risk that when my harvest is ready, then the rate, I don't know what will happen. So he might be interested in the derivative. Similarly, the flour mill is also at risk that I don't know what the rate of wheat will be. So they might be interested. We will talk about this in detail, we will do examples as well. Then we could have on livestock such as cattle, animals, we can also do our wedding on their next production. Examples, let's continue further. This list is long, still we need to understand for an impression. Currencies is one of the most importantly used derivatives because those who are importing or exporting, those who have a currency explorer, they want to safeguard themselves. Interest rates, it can be on shares, it can be on portfolios, it can be on indexes. For example, I think that Karachi Stock Exchange Index, by the way, it has become PFX but the index is still called KSE 100. So I think the index has to go up, so I could make invest through some derivative to that index. Similarly, to economic factors such as inflation, we can also exist on derivatives. There are a lot of natural sources. Natural sources are made by God but still they are under some process, such as crude oil, natural gas. Because the main utility of these derivatives is a lot of reliance and existence. Whether related can be heating, cooling, days. These are more developed markets, they don't exist in our market but as we are learning in the whole spectrum, you should have this idea. Other products such as electricity, fertilizers, it's a long list. We need to have an idea. It can be underlined on anyone. Here, it is necessary to be careful to define underline very clearly. Because here we have seen that there are multiple types of underline, their quality can differ greatly. For example, if we talk about crude oil, there are multiple types of crude oils, such as American Petroleum Institute's gravity, what will be the specific gravity, what will be the sulphur content, what will be the quality of rice, what will be the specific currency. So, we need to be aware of those underline terms and their qualities. Then, other important key terms which are related is size and price. Because how much do we talk about? For example, if we talk about the currency, do we talk about $1000 or $10,000 or $1,000,000? Its size is specifically mentioned. Then again, the price. The contract must also specify size and price. If it is stated in the contract, we will get clarity from it. Size is the amount of the underline to be exchanged. Price is the transaction or the deal on the price. These two elements are important. Price specified in the contract may be called exercise price or strike price. These are important terms. If we are entering a contract today and it is a three-month or one-month contract, then what price will the settlement be? We normally call it exercise price or strike price. Note, the price specified in the contract is not the current or spot for the underline, but a price that is good for future delivery. A product that is currently running in the market. The price in the derivative, we are saying that at the time of settlement, what we think can be the value. Actually, there will be a variation in that. But at the time of contract, a time when the price will be negotiated or finalized in the parties, that is the price, that is exercise price or strike price. Expiration date. Nothing can be open-ended. It should have a specified deadline, timeline. Expiration date is very important. What is the term? Is it three months? Is it six months? It could be any period, but it should be defined. All derivatives have a finite life. Each contract has a specified date on which the contract ends called the expiration date. That this date can be any date, but it is necessary to be specific. Then comes settlement. Settlement describes how a contract is satisfied at expiration. If the time maturity has expired, then how will the settlement be taken? What will it be? That is referred to as settlement. The clarity of settlement will be in the beginning of the contract. What is the settlement mechanism we are talking about? If physical delivery of acid is possible, the contract will be key term. It means physical delivery. We have told you that after six months, we will buy a ton of garbage. Physical delivery. Physical delivery. What will be physical delivery? After six months, we will give you a ton of weed. We will pay you its specified amount. This is referred to as physical delivery. This is the type of settlement. Contracts with our underlying outcomes such as hearing, cooling. Like you have done it on electricity or we are saying how many days it will rain or how many days the weather will be good. Physical delivery is not possible in this. In that case, it is settled in some other way. It is called cash settlement. We see that the better settlement of the contract in two parties will be settled in cash. The winning party will get the money and the losing party will pay. This is how the structure is. Normally, there are many derivatives that are cash settled. But still, there are few which are physically delivered as well. We have taken a lot of time on this. You should do some research on how derivatives exist in our market. We will discuss this further next time. Thank you.