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

  • Multilateral Netting
    Multilateral netting is defined as the process that cancels via offset all or part of the debt owed by one entity to another related entity.
  • Bill Discounting
    Bill Discounting receiving payment on a bill of exchange prior to the bill’s maturity by surrendering the bill for the face value less applicable interest
  • Law of one price
    Law of one price— states that if the identical product or service can be sold in two different markets, and no restrictions exist on the sale or transportation ...
  • Bundling
    Bundling is provision of more than one product or service to a customer at an inclusive price e.g. ‘free’ life insurance with a loan.
  • Company /corporation
    An organization of business or voluntary association of many persons who invest money/capital under the existing law to gain profit and they share the profit and loss arising there from...
  • Non-business day
    A non-business day means any Saturday or Sunday or any bank holiday (not being part holiday) and includes in respect of any bank premises
  • Deposit Account
    A deposit account is an account provided by a bank or other financial institution for customers to save money and earn profit/ interest on cash held in the account.