Financial instruments - part 7

In this lesson

1. 0:00 Financial instruments overview and derivatives introduction
2. 1:07 Derivative definition and three core characteristics
3. 2:25 Call option illustration and how derivatives work
4. 4:15 How derivative value changes with underlying assets
5. 6:09 Multiple underlying items and derivative types
6. 7:56 Classification and measurement under IFRS 9

About this lesson

You'll learn the three-part definition of a derivative (no initial net investment, value changes with an underlying item, settled at a future date), explore practical examples like call options on shares, and understand why derivatives are always measured at fair value through profit or loss. This video completes the financial instruments trilogy, building on financial assets and liabilities from the previous two parts. Derivatives can feel abstract, but this lesson breaks them down using relatable examples. A call option to buy shares at a fixed price illustrates how a derivative's value moves in response to changes in the underlying asset—in this case, the share price. You'll see why entering a derivative contract immediately exposes you to risk, and how that risk is reflected in fair value accounting. The session covers the range of underlying items you might encounter, from share prices and commodity prices to exchange rates and interest rates. By the end of this video, you'll understand the classification and measurement rules under IFRS 9: derivatives are financial assets or liabilities with no initial cost, always measured at fair value, with all gains and losses recognised immediately in the profit and loss account. This knowledge directly supports your exam preparation and builds your confidence in tackling derivative questions on your case studies and objective tests.

Duration: 9m