What Do You Mean By Derivatives?
The word derivative refers to a variable which has been derived from another variable. Thus derivatives have no value of their own as they derive their value from the value of some other assets which is known as underlying asset. They are specialized contracts which signify an agreement to buy or sell the underlying asset of the derivate up to a certain time in the future at a predetermined price. The value of the contract depends on the expiry period and also on the price of the underlying asset. For example – Derivative contract on crude oil depends on the price of crude oil.
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