What are some real-world examples of derivatives?

What are some real-world examples of derivatives?

Derivatives are financial instruments whose value is derived from an underlying asset. Common examples include options, futures, and swaps.

Can you explain how options work as a derivative?

Sure! Options give the holder the right, but not the obligation, to buy or sell an asset at a predetermined price before a certain date.

What about futures? How do they differ from options?

Futures are contracts to buy or sell an asset at a future date for a price agreed upon today. Unlike options, futures obligate the buyer to purchase the asset.

Are there any real-life scenarios where derivatives are used?

Yes! Companies often use derivatives to hedge against risks, like fluctuations in commodity prices or currency exchange rates.