Cherry chip cake is a delightful treat that combines the sweetness of cherries with a moist and fluffy cake base. This guide will walk you through the step-by-step process of making a homemade cherry chip cake that is sure to impress your friends and family. With a few key ingredients and some simple techniques, you'll be able to create a mouthwatering dessert that will be the highlight of any occasion. So, let's get started!

Preparing the Batter

To begin, preheat your oven to 350°F (175°C) and grease and flour two 9-inch round cake pans. In a large mixing bowl, combine the flour, sugar, baking powder, and salt. Mix them together until well combined. Add the softened butter to the dry ingredients and mix until the mixture resembles coarse crumbs.

Adding Wet Ingredients

In a separate bowl, whisk together the milk, vanilla extract, and almond extract. Gradually pour this mixture into the dry ingredients, mixing well after each addition. If desired, add a few drops of red food coloring to give the cake a vibrant pink color. Stir in the chopped maraschino cherries and mini chocolate chips, ensuring they are evenly distributed throughout the batter.

Incorporating Egg Whites

In another bowl, beat the egg whites until stiff peaks form. Gently fold the beaten egg whites into the cake batter, using a spatula or wooden spoon. Be careful not to overmix, as this can deflate the airiness of the egg whites and result in a denser cake.

Baking the Cake

Divide the batter hot chocolate cake equally between the prepared cake pans. Smooth the tops with a spatula to ensure even baking. Place the pans in the preheated oven and bake for approximately 25-30 minutes, or until a toothpick inserted into the center of the cakes comes out clean. Rotate the pans halfway through baking for even cooking. Once baked, remove the pans from the oven and allow the cakes to cool in the pans for about 10 minutes. Then, transfer them to a wire rack to cool completely.

Frosting and Assembly

Once the cakes have cooled, it's time to frost and assemble your cherry chip cake. You have the option to use either whipped cream or cream cheese frosting. Whipped cream adds a light and airy touch, while cream cheese frosting offers a tangy and rich flavor. Choose your preferred frosting and spread a generous layer over one cake layer. Place the second cake layer on top and frost the entire cake, ensuring it is evenly covered.

Decorating and Serving

To enhance the visual appeal of your cherry chip cake, consider decorating it with additional maraschino cherries or chocolate shavings. You can also add a sprinkle of mini chocolate chips for an extra burst of flavor. Once decorated, refrigerate the cake for at least an hour before serving. This allows the flavors to meld together and the frosting to set. Slice the cake into beautiful portions and serve chilled.

Conclusion:

Making a cherry chip cake from scratch is a rewarding and delicious endeavor. By following this step-by-step guide, you'll be able to create a moist and flavorful cake that is filled with the delightful combination of cherries and chocolate. Whether it's for a birthday, celebration, or simply a sweet treat, this homemade cherry chip cake is sure to impress and leave everyone wanting more. So, put on your apron, gather your ingredients, and embark on a baking adventure to create a delightful cherry chip cake that will be enjoyed by all.

T-shirts are a timeless and versatile wardrobe staple that can be found in everyone's closet. Whether you're looking for a casual everyday outfit or something to express your personal style, a well-fitting and carefully chosen t-shirt can make all the difference. In this comprehensive guide, we will explore the different styles, fits, and materials available in t-shirts, along with valuable tips on how to care for them. By the end, you'll be equipped with all the knowledge you need to make informed choices when it comes to selecting, wearing, and maintaining your t-shirt collection.

I. Understanding T-Shirt Styles:

T-shirts come in various styles, each offering unique features and designs. Here are some popular styles you should be familiar with:

Crew Neck: The crew neck is a classic and versatile t-shirt style that features a rounded neckline. It's suitable for most body types and can be easily dressed up or down.

V-Neck: V-neck t-shirts have a V-shaped neckline that elongates the neck and adds a touch of sophistication to your look. They work well for those with broader shoulders or round faces.

Henley: Henley t-shirts feature a buttoned placket and a collarless neckline, creating a casual yet stylish look. They're great for layering or achieving a more laid-back appearance.

Raglan: Raglan sleeve t-shirts have a diagonal seam that extends from the collar to the underarm. This style provides a sporty and athletic aesthetic, making it perfect for active wear.

Polo: Polo shirts are a slightly dressier version of t-shirts. They have a collar and buttoned placket, giving them a more refined and preppy look.

II. Choosing the Right Fit:

Selecting the right fit is crucial for both comfort and style. Here are the main t-shirt fits you'll encounter:

Regular Fit: Regular fit t-shirts have a relaxed cut and offer a comfortable, loose feel. They're suitable for most body types and provide a classic casual look.

Slim Fit: Slim fit t-shirts have a narrower cut and hug the body more closely. They provide a more tailored appearance and are ideal for individuals with a slim or athletic build.

Athletic Fit: Athletic fit t-shirts are designed for those with a more muscular build. They offer a wider shoulder and chest area while tapering down towards the waist, creating a flattering silhouette.

Oversized Fit: Oversized t-shirts are currently on-trend and offer a relaxed and effortlessly stylish look. They have a loose, baggy fit and can be paired with skinny jeans or leggings for a balanced outfit.

III. Fabrics and Materials:

The choice of fabric and material plays a significant role in the comfort and durability of your t-shirts. Here are some common fabrics used in t-shirt manufacturing:

Cotton: Cotton is a natural fiber that is breathable, soft, and comfortable. It's the most popular choice hats for t-shirts due to its versatility and ability to absorb moisture.

Polyester: Polyester is a synthetic fabric that is durable, wrinkle-resistant, and quick-drying. It's often blended with other materials to enhance the t-shirt's durability and stretch.

Blends: T-shirts made from fabric blends, such as cotton-polyester blends, offer the benefits of both materials. They combine the softness and breathability of cotton with the strength and quick-drying properties of polyester.

Organic and Sustainable Materials: For those concerned about the environment, organic cotton, hemp, or bamboo t-shirts are excellent options. These materials are grown without harmful chemicals and are more sustainable in the long run.

T-Shirts:

Proper care and maintenance of your t-shirts will not only prolong their lifespan but also keep them looking fresh and comfortable. Here are some essential tips for t-shirt care:

Washing Instructions: Always check the care label on your t-shirts for specific washing instructions. In general, machine wash your t-shirts in cold water to prevent color fading and shrinkage. Use a mild detergent and avoid using bleach, as it can damage the fabric.

Drying: Air drying is the best option for t-shirts, as it helps maintain their shape and prevents shrinking. If you need to use a dryer, choose a low heat setting to minimize the risk of damage. Avoid over-drying, as it can lead to excessive wrinkling.

Ironing: Most t-shirts don't require ironing, especially if you hang them to dry properly. However, if you prefer a more polished look, use a low to medium heat setting on your iron and iron the t-shirt inside out to avoid direct contact with the print or design.

Stain Removal: Treat stains promptly to prevent them from setting into the fabric. Gently blot the stain with a stain remover or mild detergent before washing. Avoid rubbing vigorously, as it can damage the fabric fibers.

Folding and Storage: Fold your t-shirts neatly to minimize wrinkles. Avoid hanging them for extended periods, as it can stretch the fabric. Store your t-shirts in a cool, dry place away from direct sunlight to prevent color fading.

V. Styling Tips:

Now that you have a solid understanding of t-shirt styles, fits, materials, and care, let's explore some styling tips to elevate your t-shirt game:

Layering: T-shirts are incredibly versatile for layering. Pair a crew neck or V-neck t-shirt with a lightweight jacket or cardigan for a stylish and casual look. Experiment with different color combinations to create visually appealing outfits.

Dressing Up: T-shirts can be dressed up for more formal occasions. Opt for a slim-fit or polo t-shirt and pair it with tailored trousers or a skirt. Add accessories like a blazer, statement necklace, or heels to elevate the look.

Casual Chic: For a relaxed and effortless look, style an oversized t-shirt with high-waisted jeans or shorts. Complete the outfit with sneakers or sandals and accessorize with a hat or sunglasses for a touch of personality.

Graphic Tees: Graphic t-shirts are a great way to showcase your interests, personality, or sense of humor. Pair them with neutral bottoms to let the design stand out or mix patterns and colors for a bold and eclectic look.

Tucked-In or Untucked: Experiment with different tucking styles to create different vibes. Tucking a t-shirt into high-waisted pants or skirts can define the waist and create a polished appearance. Leaving the t-shirt untucked offers a more relaxed and casual vibe.

Conclusion:

T-shirts are a wardrobe staple that offers endless possibilities for personal style and comfort. By understanding the different styles, fits, fabrics, and caring for your t-shirts, you can build a versatile collection that lasts. From casual everyday outfits to dressed-up ensembles, t-shirts can be effortlessly incorporated into a wide range of looks. Remember to embrace your individuality, experiment with different combinations, and have fun expressing yourself through the timeless and versatile t-shirt.

Originality is the essence of creativity. It fuels innovation, brings forth new ideas, and distinguishes individuals from the crowd. In a world saturated with information and ideas, cultivating originality has become more crucial than ever. This guide aims to provide you with practical strategies and insights to unlock your creative potential and embrace originality in every aspect of your life. From personal endeavors to professional pursuits, let's embark on a journey to unleash the power of your unique voice.

Embracing Authenticity

Discovering Your Inner Voice:
To foster originality, it is essential to first connect with your authentic self. Take time for introspection, reflecting on your values, passions, and interests. Discover what truly resonates with you, as this forms the foundation of your creative expression.

Embracing Imperfections:
Embrace imperfections as stepping stones towards originality. Understand that perfection is subjective and can hinder creativity. Allow yourself to take risks, make mistakes, and learn from them. Embracing imperfections frees you from self-imposed limitations and opens doors to original ideas.

Nurturing Self-Confidence:
Cultivate self-confidence to unleash your originality. Believe in your abilities and ideas. Surround yourself with supportive individuals who inspire and uplift you. Celebrate your successes, no matter how small, as they reinforce your belief in your creative potential.

Sparking Creativity

Stimulating Curiosity:
Foster a sense of curiosity in everyday life. Explore diverse subjects, engage in conversations, read books, and seek out new experiences. Curiosity fuels imagination and broadens your creative horizons, leading to original ideas.

Breaking Routines:
Break free from monotonous routines and familiar patterns. Step out of your comfort zone, try new activities, and expose yourself to different environments. Novel experiences stimulate your brain, encouraging unique perspectives and ideas.

Embracing Mindfulness:
Practice mindfulness to cultivate a heightened awareness of the present moment. By being fully present, you can notice subtle details and connections that inspire originality. Mindfulness also allows you to tap into your intuition and trust your creative instincts.

Fostering a Creative Environment

Cultivating Inspiration:
Surround yourself with sources of inspiration. Create a physical or virtual space that reflects your interests and stimulates creativity. Display artwork, quotes, or photographs that evoke emotions and spark imagination. Engage with creative communities and seek out mentors who inspire you.

Collaboration and Feedback:
Engage in collaborative efforts to enhance your originality. Share ideas with others, seek feedback, and participate in group brainstorming sessions. Collaborations encourage diverse perspectives and provide invaluable insights, pushing your creativity to new heights.

Embracing Constraints:
Embrace constraints as catalysts for creativity. Limitations foster innovative thinking by forcing you to find unique solutions within boundaries. Whether it's time constraints, budget limitations, or specific guidelines, view them as opportunities to explore uncharted territories.

Unleashing Originality in Various Areas

Original Thinking in Problem-Solving:
Apply original thinking to problem-solving situations. Challenge conventional solutions and explore alternative perspectives. Combine unrelated concepts, think laterally, and consider the original bigger picture. Originality in problem-solving leads to innovative and effective outcomes.

Originality in Artistic Expression:
In artistic endeavors, embrace originality as a means of self-expression. Experiment with different mediums, styles, and techniques. Develop your own artistic voice by blending influences from various sources while adding a unique touch that reflects your personal experiences and emotions.

Originality in Writing and Storytelling:
Cultivate originality in writing by exploring unique narratives, characters, and themes. Challenge clichés and stereotypes, allowing your stories to stand out. Experiment with different writing styles and techniques to find your own distinctive voice.

Originality in Entrepreneurship and Business:
Originality is crucial in entrepreneurship and business. Identify gaps in the market and develop innovative solutions to meet customer needs. Foster a culture of creativity within your team, encouraging brainstorming sessions and out-of-the-box thinking. Differentiate your brand by offering unique value propositions and customer experiences.

Originality in Everyday Life:
Embrace originality in your daily life, from personal style to hobbies and leisure activities. Express your individuality through fashion, home décor, and personal projects. Seek out new experiences, explore different cuisines, and engage in activities that challenge your comfort zone.

Overcoming Creative Blocks

Embracing Failure:
Understand that failure is an inherent part of the creative process. Embrace it as an opportunity to learn, grow, and refine your ideas. Use setbacks as motivation to persevere and push your boundaries further.

Overcoming Self-Doubt:
Self-doubt can hinder originality. Challenge negative self-talk and cultivate a positive mindset. Surround yourself with supportive individuals who believe in your creative abilities. Practice self-care to nurture your mental and emotional well-being.

Seeking Inspiration from Others:
When facing creative blocks, seek inspiration from other creative works. Explore different art forms, read books, watch movies, or attend exhibitions. Immersing yourself in the creativity of others can reignite your own original ideas.

Taking Breaks and Rest:
Rest and relaxation are vital for maintaining creativity. Allow yourself to take breaks when needed, as fatigue can hinder original thinking. Engage in activities that rejuvenate your mind, such as meditation, exercise, or spending time in nature.

Conclusion:

Originality is a journey of self-discovery, creative exploration, and embracing the uniqueness that sets you apart. By connecting with your authentic self, nurturing curiosity, and fostering a creative environment, you can unlock the power of original thinking in every aspect of your life. Embrace imperfections, overcome creative blocks, and surround yourself with inspiration to continuously cultivate originality. Remember, your voice and ideas are valuable contributions to the world, waiting to be unleashed. So, let your creativity soar and embrace the joy of being truly original.

Jackets are a versatile and essential component of any wardrobe. They provide protection from the elements while also adding style and personality to your outfit. With a wide range of options available in the market, finding the right jacket can be overwhelming. In this guide, we will explore various types of jackets, their features, and how to choose the perfect one for any occasion. Whether you're looking for a practical rain jacket, a fashionable leather jacket, or a warm winter coat, this guide will help you make an informed decision.

Types of Jackets:
Rain Jackets: Rain jackets are designed to keep you dry during wet weather conditions. They are typically made from waterproof or water-resistant materials such as nylon or polyester. Look for jackets with sealed seams, adjustable hoods, and zippered pockets for added convenience.

Windbreakers: Windbreakers are lightweight jackets that provide protection against wind. They are usually made from thin, breathable materials and feature elastic cuffs and a drawstring waist for a snug fit. Windbreakers are perfect for outdoor activities such as hiking or running.

Bomber Jackets: Bomber jackets have a classic, military-inspired design with a zippered front, ribbed cuffs, and a waistband. They are often made from nylon or leather and offer a stylish, casual look. Bomber jackets are suitable for everyday wear and can be paired with jeans or dresses.

Leather Jackets: Leather jackets are a timeless fashion staple. They exude style and sophistication while providing excellent durability and protection. Look for jackets made from high-quality leather, such as cowhide or lambskin. Leather jackets come in various styles, including biker jackets, moto jackets, and aviator jackets.

Denim Jackets: Denim jackets are a versatile option that can be dressed up or down. They are made from denim fabric and feature a button-up front and chest pockets. Denim jackets are great for creating a casual, laid-back look and can be paired with jeans or dresses.

Winter Coats: Winter coats are designed to keep you warm during cold weather conditions. They come in various styles, including puffer coats, wool coats, and parkas. Look for coats with insulation, a water-resistant outer shell, and a hood for maximum protection from the elements.

Considerations for Choosing the Right Jacket:
Climate: Consider the climate of your area and the intended use of the jacket. If you live in a rainy region, prioritize waterproof or water-resistant materials. For colder climates, opt for jackets with insulation or lining to provide warmth.

Fit and Comfort: Ensure that the jacket fits well and allows freedom of movement. Check the sleeve length, shoulder width, and overall length to ensure a proper fit. Consider adjustable features such as drawstrings or elastic cuffs for added comfort.

Material Quality: Pay attention to the quality of the materials used in the jacket. Look for durable fabrics and sturdy zippers or buttons. High-quality materials will ensure that your jacket lasts longer and performs well over time.

Style and Versatility: Consider your personal style and how the jacket will integrate into your wardrobe. Choose a jacket that complements your existing clothing and can be easily styled for different occasions.

Care and Maintenance: Check the care instructions for the jacket before making a purchase. Some jackets require special cleaning methods or maintenance, while others are machine washable. Consider the level of effort required to keep the jacket in good condition.

Additional Features:
Pockets: Consider the number and placement of pockets. Inner and outer pockets can provide convenient storage for essentials such as keys, wallets, or smartphones.

Hood: Jackets with hoods offer additional protection against rain, wind, and cold. Look for jackets with adjustable hoods that can be tightened or loosened as needed.

Lining: Jackets with a lining provide extra warmth and comfort. Insulated linings, such as fleece or down, are ideal for colder climates, while breathable linings are suitable for milder temperatures.

Ventilation: Some jackets feature ventilation options, such as underarm vents or mesh panels, to help regulate body temperature and prevent overheating during physical activities.

Reflective Elements: For safety purposes, jackets with reflective elements can enhance visibility in low-light conditions. Look for jackets with reflective piping, logos, or strips for added safety during outdoor activities.

Adjustable Features: Jackets with adjustable features, such as cuffs, waistbands, or hems, allow for a customizable fit and can help keep out drafts or wind.

Laminated Zippers: Jackets with laminated zippers provide additional water resistance, preventing water from seeping through the zipper area.

Care and Maintenance:
To ensure the longevity and performance of your jacket, proper care and maintenance are essential. Follow the manufacturer's instructions for cleaning and storage. Here are some general tips:

Regularly check and clean your jacket according to the care instructions. Some jackets may require professional cleaning, while others can be machine washed.

Before washing, remove any detachable parts, such as hoods or fur trims, if possible.

Use mild detergents and follow the recommended water temperature for washing.

Avoid using fabric softeners or bleach, as they can damage the jacket's materials.

Hang or lay the jacket flat to dry. Avoid direct sunlight or heat sources that may cause shrinking or damage.

Store your jacket in a cool, dry place. Avoid cramming or folding it tightly to prevent creasing or damage to the materials.

If your jacket has down insulation, periodically fluff music it to maintain loft and restore insulation properties.

Conclusion:

Choosing the perfect jacket involves considering various factors such as climate, fit, material quality, and intended use. Understanding the different types of jackets available and their features can help you make an informed decision. Whether you need a rain jacket, windbreaker, leather jacket, or winter coat, there is a style and option that suits your needs and preferences. By taking care of your jacket and following proper maintenance guidelines, you can enjoy its functionality and style for years to come. Remember to prioritize comfort, versatility, and quality when selecting your ideal jacket, ensuring that you stay both protected and fashionable in any weather or occasion.

A financial market refers to a marketplace where various kinds of financial securities such as stocks, bonds, commodities, etc. are traded. The term ‘market’ can also refer to exchanges that are legal organizations that facilitate the trade of financial securities between buyers and sellers. In any case, these markets are categorized based of the type of financial securities that are traded through them. One such financial market is the Derivatives Market.

Derivatives market thus refers to the financial marketplace where derivative instruments such as futures, forwards and options contracts are traded between counterparties.

It was during the 1980s and 1990s that the financial markets saw a major growth in the trade of derivatives. A derivative is a financial instrument whose value is derived from the value of an underlying asset such as stocks, bonds, currencies, commodities, interest rates and/or different market indices. These underlying assets have fluctuating prices and returns, and derivatives provides a means to investors to reduce the risk exposure and leverage profits on these assets. Thus, derivatives are an essential class of financial instruments and central to the modern financial markets providing not just economic benefits but also resilience against risks. The most common derivatives include futures, forwards, options and swap contracts.

As per the European Securities and Markets Authority (ESMA), derivatives market has grown impressively (around 24 percent per year in the last decade) into a truly global market with over €680 trillion of notional amount outstanding. The interest rate derivatives (IRDs) accounted for 82% of the total notional amount outstanding followed by currency derivatives at 11%.

Main types of derivative contracts
Derivatives derive their value from an underlying asset, or simply an ‘underlying’. There is a wide range of financial instruments that can be an underlying for a derivative such as equities or equity index, fixed-income instruments, foreign currencies, commodities, and even other securities. And thus, depending on the underlying, derivative contracts can derive their values from corresponding equity prices, interest rates, foreign exchange rates, prices of commodities and probable credit events. The most common types of derivative contracts are elucidated below:

Forwards and Futures
Forward and futures contracts share a similar feature: they are an agreement between two parties to buy or sell a specified quantity of an underlying asset at a specified price (or ‘exercise price’) on a predetermined date in the future (or ‘expiration date’). While forwards are customized contracts i.e., they can be tailor-made according to the asset being traded, expiry date and price, and traded Over-the-Counter (OTC), futures are standardized contracts traded on centralized exchanges. The party that buys the underlying is said to be taking a long position while the party that sells the asset takes a short position and both parties are obligated to fulfil their part of the contract.

Options
An option contract is a financial derivative that gives its holder the right (but not the obligation) to trade an underlying asset at a price set in advance irrespective of the market price at maturity. When an option is bought, its holder pays a fixed amount to the option writer as cost for this flexibility of trading that the option provides, known as the premium. Options can be of the types: call (right to buy) or put (right to sell).

Swaps
Swaps are agreements between two counterparties to exchange a series of cash payments for a stated period of time. The periodic payments charged can be based on fixed or floating interest rates, depending on contract terms decided by the counterparties. The calculation of these payments is based on an agreed-upon amount, called the notional principal amount (or just notional).

Exchange-traded vs Over-the-counter Derivatives Market
Exchange-traded derivatives markets
Exchange-traded derivatives markets are standardized markets for derivatives trading and follows rules set by the exchange. For instance, the exchange sets the expiry date of the derivatives, the lot-size, underlying securities on which derivatives can be created, settlement process etc. The exchange also performs the clearing and settlement of Produit dérivé manga trades and provide credit guarantee by acting as a counterparty for every trade of derivatives. Thus, exchanges provide a transparent and systematic course of action for any derivatives trade.

Over-the-counter markets
Over-the-counter (also known as “OTC”) derivatives markets on the other hand, provide a lesser degree of regulations. They were almost entirely unregulated before the financial crisis of 2007-2008 (also a time when derivatives markets were criticized, and the blame was placed on Credit Default Swaps). OTCs are customized markets and run by dealers who hedge risks by indulging in derivatives trading.

Types of market participants
The participants in the derivative markets can be categorized into different groups namely,

Hedgers
Hedging is a risk-neutralizing strategy when an investor seeks to protect a current or anticipated position in the market by limiting their risk exposure. They can do so by taking up an offset or counter position through derivative contracts. Parties such as individuals or companies who perform hedging are called Hedgers. The hedger thus aims to eliminate volatility against fluctuating prices of underlying securities and protect herself/himself from any downsides.

Speculators
Speculation is a very common technique used by traders and investors in the derivatives market. It is based on when traders have a strong viewpoint regarding the market behavior of any underlying security and though it is risky, if the viewpoint is correct, the speculation may reward with attractive payoffs. Thus, speculators use derivative contracts with a view to make profit from the subsequent price movements. They do not have any risk to hedge, in fact, they operate at a relatively high-risk level in anticipation of profits and provide liquidity in the market.

Arbitrageurs
Arbitrage is a strategy in which the participant (or arbitrageur) aims to make profits from the price differences which arise in the investments made in the financial markets as a result of mispricing. Arbitrageurs aim to earn low risk profits by taking two different positions in the same or different contracts (across different time periods) or on different exchanges to in-cash on price discrepancies or market inefficiencies.

Margin Traders
Margin is essentially the collateral amount deposited by an investor investing in a financial instrument to the counterparty in order to cover for the credit risk associated with the investment. In margin trading, the trader or investor is not required to pay the total value of your position upfront. Instead, they only need pay the margin amount which may vary and are usually fixed by the stock exchanges considering factors like volatility. Thus, margin traders buy and sell securities over a single session and square off their position on the same day, making a quick payoff if their speculations are right.

Criticism of derivatives
While derivatives provide numerous benefits and have significantly impacted modern finance and markets, they pose many risks too. In a 2002 letter to Berkshire Hathaway shareholders, Warren Buffet even described derivatives as “financial weapons of mass destruction”.

Derivatives are more highly leveraged due to relatively relaxed regulations surrounding them, and where one may need to put up half the money or more with buying other securities, derivatives traders can get by with just putting up a few percentage points of the total value of a derivatives contract as a margin. If the price of the underlying asset keeps falling, covering the margin account can lead to enormous losses. Derivatives are thus often criticized as they may allow investors to obtain unsustainable positions that elevates systematic risk so much that it can be equated to legalized gambling. Derivatives are also exposed to counterparty credit risk wherein there is scope of default on the contract by any of the parties involved in the contract. The risk becomes even greater while trading on OTC markets which are less regulated.

Derivatives have been associated with a number of high-profile credit events over the past two decades. For instance, in the early 1990s, Procter and Gamble Corporation lost more than $100 million in transactions in equity swaps. In 1995, Barings collapsed when one of its traders lost $1.4 billion (more than twice its then capital) in trading equity index derivatives.

The amounts involved with derivatives-related corporate financial distresses in the 2000s increased even more. Two such events were the bankruptcy of Enron Corporation in 2001 and the near collapse of AIG in 2008. The point of commonality among these events was the role of OTC derivative trades. Being an AAA-rated company, AIG was being exempted from posting collateral on most of its derivatives trading in 2008. In addition, AIG was unique among CDS market participants and acted almost exclusively as credit protection seller. When the global financial crisis reached its peak in late 2008, AIG’s CDS portfolios recorded substantial mark-to-market losses. Consequently, the company was asked to post $40 billion worth of collateral and the US government had to introduce a $150 billion financial package to prevent AIG, once the world’s largest insurer by market value, from filing for bankruptcy.

Conclusion
Derivatives were essentially created in response to some fundamental changes in the global financial system. If correctly handled, they help improve the resilience of the system, hedge market risks and bring economic benefits to the users. Thus, they are expected to grow further with financial globalization. However, past credit events have exposed many weaknesses in the organization of their trading. The aim is to minimize the risks associated with such trades while enjoying the benefits they bring to the financial system. An important challenge is to design new rules and regulations to mitigate the risks and to promote transparency by improving the quality and quantity of statistics on derivatives markets.