The financial markets are the markets for money. The basic instruments are the currencies, stocks, and bonds. Derived from these are options, forwards, futures, and swaps.

The combination of these allows risk to be traded around in various ways. An example of a trade of risk might be moving the risk might be an import company that think the dollar is going to fall, but can't afford to have the dollar rise much. They may elect to hedging against the dollar rising by buying a call option for the amount of dollars they need. They lose the option premium on the option at first, but their loss is limited to the premium. If the dollar increase above the strike prise for the option they will get their dollars for their worst case price (which is tolerable), and if the dollar declines, they've only lost the option premium. The seller (underwriter) of the option expects the price to not raise more than the option premium (usually on average, for a number of transactions), and can make a profit by taking on the risk.

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