Derivatives

Definition

  • Financial contracts whose value is derived from the value of some underlying asset, rate or index. Derivatives are used as risk-management tools by governments and corporations to reduce exposure to risk, mainly related to fluctuations in foreign-exchange and interest rates. Derivative instruments include swaps, options, futures and forward contracts and are used by banks in two principal activities: sales/trading and asset/liability management.

Synonyms
outgrowth, by-product, based off, offshoot, spin-off

Related Terms and Acronyms

  • Foreign Currency (FCY) Acronym,
    • Paper money and coins from other countries.
  • Foreign Exchange (FX, F/X, FOREX, FE) Acronym,
    • Various instruments used to settle payments for transactions between individuals or organizations using different currencies (e.g., notes, cheques, etc.).
    Bank account transaction code.
  • Foreign Exchange Rate (FXRate) Abbreviation,
    • The value of a nation's currency in terms of another nation's currency
  • Futures Definition,
    • Contracts to buy something in the future at a price agreed upon in advance. They first developed in the agriculture commodity markets but often involve foreign exchange, Eurodollar deposits and government bonds.
  • Index Definition,
    • A table of yields or interest rates being paid on debt (such as Treasury notes or bank deposits) that is used to determine interest-rate changes.
  • Indexed Annuity Definition,
    • An annuity where investment performance is pegged to a stock index.
  • Investment Definition,
    • Something you put your money into in order to make money.
  • Issuer Definition,
    • A legal entity that develops, registers, and sells securities including stocks, bonds and derivatives.
  • Portfolio Definition,
    • A collection of investments.
  • Risk Management Definition,
    • The methods used to identify, assess, and prioritize risk and the strategies used to manage them in the most effective and economical way possible.
  • Secondary Market Definition,
    • A market where financial instruments such as stocks, bonds, options and futures are bought and sold to investors.
  • Securities/Investment Dealer Definition,
    • One who acts as the agent for another party to buy and sell securities and other investments; also an underwriter.
  • Security Definition,
    • A tradable financial implement that represents ownership, the rights to ownership or debt.
    • Property designated as collateral.
    • A document stating ownership of a stock or bond.
  • Swap Definition,
    • An agreement between two businesses to exchange commodities, payments or other financial products to reduce the risk of volatile market conditions or to obtain a better price or rate. For example, interest rate swaps, where floating rate interest is exchanged for fixed rate interest, protects a corporation against rises in rates or allows it to take advantage of a better rate. A cross-currency swap enables two parties to enter into an agreement in which one exchanges its currency for the other's to meet their separate requirements.
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