Quick Definition

A derivative is a financial security whose value is dependent upon or derived from an underlying asset or group of assets.

Examples

• 1Futures contracts on commodities like oil or wheat, where the value is based on the future price of these goods.
• 2Options on stocks, allowing investors to buy or sell at a predetermined price within a specific time frame.
• 3Swaps that exchange one type of cash flow for another, such as interest rate swaps exchanging fixed rate payments for floating rate ones.

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