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Definition

Derivatives

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.

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