- 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.
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,
➥ Bank account transaction code.
- Various instruments used to settle payments for transactions between individuals or organizations using different currencies (e.g., notes, cheques, etc.).
- 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.