[Verse 1] Forward contracts lock the price today For future delivery, that's the way Cost of carry sets the fair value right Storage plus interest minus dividends in sight Zero value when you start the deal But mark-to-market makes profits real Cash or physical when contract's done Forward pricing theory, we've just begun [Chorus] Derivatives dancing, four types in line Forwards and futures, swaps by design Options give choices, calls going up Puts going down, fill up your cup Cost of carry, margin calls too Mark-to-market, convergence is true Intrinsic and time value, moneyness plays Derivative instruments, learn all their ways [Verse 2] Futures trade on exchanges with margin required Initial deposit gets you hired Maintenance level keeps you in the game Daily settlement, profits and losses the same Convergence happens as expiry nears Spot and futures price, the gap disappears Basis risk when hedging's not perfect But futures markets keep flowing and working [Chorus] Derivatives dancing, four types in line Forwards and futures, swaps by design Options give choices, calls going up Puts going down, fill up your cup Cost of carry, margin calls too Mark-to-market, convergence is true Intrinsic and time value, moneyness plays Derivative instruments, learn all their ways [Verse 3] Swaps exchange cash flows, that's the plan Fixed for floating, understand Interest rates, currencies, equity too Total return swaps, performance flows through Pricing swaps at par when they begin Present value zero, that's how we win Notional amounts stay theoretical While cash flows dance, so practical [Bridge] Options give you rights but no obligation Calls bet up, puts bet down with dedication American style, exercise anytime European waits till expiration chime In-the-money, at-the-money, out-of-the-money states Intrinsic value plus time value, that's what makes their rates [Final Chorus] Derivatives dancing, four types in line Forwards and futures, swaps by design Options give choices, rights without duty Understanding derivatives, now that's beauty From cost of carry to margin's embrace These instruments help us hedge and trade space Master these concepts, you're on your way CFA knowledge grows stronger each day [Outro] Forward, futures, swaps, and options Financial markets give us all these adoptions Learn them well, use them right Derivative knowledge shining bright
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