 Welcome back, everyone. This week, we're going to look at derivative products. What we're going to do, we'll look at the Block-Scholes formula, then we'll look at the pay also for financial future. And at the same time, we'll have a look at the benefits of interest rate swaps. And then we'll examine the nature of currency swaps. Now, first things first. If we want to look at the Black-Scholes formula, basically, the Black-Scholes formula is used to calculate option prices. And the way that it does that is basically by providing a theoretical estimate of the price of options. Now, these options normally are European-style options. And here, the formula basically assumes that an option is only exercisable at its expiration date. And at the same time, there is another assumption that markets are acting efficiently. And so these basically are the three main conditions associated with applying the Black-Scholes formula when we are trying to find out the price of an option. Now, while doing that, when we want to calculate the price of an option and find out what is the price of an option, we look at five different variables within the formula. So the first variable is basically the strike price. And the strike price is basically the asset price when the option was exercised. Now, the other variable is the current price of the stock. The third variable here is the time to expiration. The fourth one is basically the risk-free rate. And finally, we look at the volatility of the option. Now, having all of these would allow us basically to calculate the option price and find out what the real option price looks like. And as we discussed, we will also be looking at the payoffs of financial futures. And for us, what is important is that to see and to examine the different gains and losses is that could occur due to changes in the underlying price of the asset. And because of this, we look at future contracts. And the future contracts basically are zero net present value contracts. And in that sense, future contracts are normally marked to market, which makes them a good instrument for hedging. Now, what does mark to market mean? Basically, mark to market is when we look at the value of the asset price based on its current market pricing or based on its fair value. Now, on the other hand, if we want to look at interest rate swaps and if we want to examine some of the benefits of interest rate swaps, first of all, we need to look at what it means. And interest rate swaps are instruments that normally are over-the-counter derivatives. And these kind of derivative contracts are between two different parties. So you have one party here that receives a fixed amount on a periodical basis and the other party basically provides a library linked floating payments. Now, normally interest rate swaps, what they do, they help in reducing interest rate risk. And by doing so, they also help reduce uncertainty. Now, what they do also, they can help reduce the cost of loans. And as a result, these interest rate swaps or these kinds of instruments, they have a longer horizon than financial futures. Next thing we're gonna do is basically examine the nature of currency swaps. Now, currency swaps are basically contracts where you have two different parties exchanging two different currencies. And these two different currencies are basically exchanged at a particular rate and then after that, they go ahead and re-exchange the currencies back again at a different rate that they also agree on. But the difference is the re-exchange happens at a fixed date in the future. Now here, as you can imagine, the currency swap trade is basically composed of two different transaction. The first transaction is a spot transaction while the other transaction is basically a forward transaction. In terms of the spot transaction, here what we have a purchasing and so buying and selling of a particular currency for an immediate or perhaps a near immediate delivery and payment. On the other hand, when we're talking about the forward transaction, here what we're talking about is basically the buying and selling of a currency at a specific date in the future. Now, why do we look at currency swaps? So what are the benefits of looking, what are the benefits of currency swaps? Basically they are riskless in nature. And so here investors can benefit from using the funds that they have today in a specific currency to basically fund obligations that are dominated in another currency. At the same time, while they are doing this, they are able to hedge foreign exchange risks. And so as you can see, it eliminates risk in a way or another for investors. Now with all of this, with everything that we've discussed today, perhaps it would be a good idea for you to go and do a little bit of research and find out what are some of the benefits of financial futures. While you do this, I'll wait for you and we'll have a chat next week.