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Introduction
Literal meaning of derivative is that something which
is derived. Now question arises as to what is derived?
From what it is derived? Simple one line answer is that
value/price is derived from any underlying asset.
The term ‘derivative’ indicates that it has no
independent value, i.e., its value is entirely derived
from the value of the underlying asset. The underlying
asset can be securities, commodities, bullion,
currency, livestock or anything else.
Financial Derivative is defined as a contract which
derives its value from the prices, or index of prices of
underlying securities.