Definition Of


Derivatives are financial contracts whose values are derived from the values of underlying assets. A derivative can be defined as a financial instrument whose value depend on ( or derives from) the values of other, more basic underlying variables. Very often the variables underlying derivatives underlying derivatives are the prices of traded assets. A stock option, for example is a derivative whose value is dependent on the prices of a stock. However derivatives can be depend on almost any variable, from price cows to the amount of snow falling at a certain sky resort. They are widely used to speculate on future expectations or to reduce a security portfolio risk.

Share it:

More from this Section

  • Edge Act and Agreement Corporation
    Edge Act and Agreement Corporation refers to subsidiary of a U.S. bank incorporated under federal law to engage in various international banking ...
  • Sweep accounts
    Sweep accounts is the contracts executed between a bank and some of its deposit customers that bank to transfer funds (usually overnight)
  • Bearer form
    Bearer form describes issue form of security not registered on the issuing corporation's books, and therefore
  • FAS #52
    FAS #52 is a regulation of the Financial Accounting Standards Board requiring U.S. companies to translate foreign affiliate financial statements by the ...
  • Term loans
    Term loans is the credit extended for longer than one year and designed to fund longer-term business investments, such as the purchase of equipment or the construction of new physical facilities.
  • Fixed-rate mortgages (FRMs)
    Fixed-rate mortgages (FRMs) is the loans against real property whose rate of interest does not change during the life of the loan.
  • Bank discount rate
    Bank discount rate is the method by which yields on Treasury bills and other money market securities are calculated using par value and a 360-day year to determine the appropriate discount rate or yield.