Describe briefly the term Derivatives

Question

Describe briefly the term ‘Derivatives’?

Answer 1

The word derivative states to a variable that has been derived from any other variable. Therefore derivatives have no value of their own as they derive their value from the value of some other assets that is termed as underlying asset. They are specialized contracts that indicate an agreement to sell or buy the underlying asset of the derivate up to a particular time in the prospect at a predetermined price. The value of the contract based on the expiry period and also on the price of the underlying asset. For instance – Derivative contract on cotton depends on the price of cotton.