Overview

Conceptually speaking, a derivative is a financial instrument that derives its value from fluctuations in the values of the relevant underlying assets. These assets can vary widely, however, the most common are stocks, bonds, commodities, currency exchange rates, interest rates and market indices.[1] Businesses develop and use such financial instruments for various reasons, such as to lock prices, to hedge positions against unfavorable rate movements and, ultimately, to mitigate risk.[2]