Define investment derivatives. Also, present examples of some of the key derivatives.

Question

Quizplus · Accepted Answer

The Answer is Derivatives are financial instruments that, like futures, are derived from an underlying transaction in goods (stocks, bonds, or money itself). Originally invented for commodities providers as a hedge against price fluctuations, futures and options also give speculators the chance to make a fortune or lose everything.
Examples:
Option Spreads: A call option gives the holder the right to buy the underlying asset on or before a certain date, and at a certain price. A put option gives the holder the right to sell the underlying asset on or before a certain date, and at a certain price. An infinite variety of option spreads exist today. These include yield curve spreads, money-market spreads, spreads on London Inter Bank Offered Rate (LIBOR), T-bills, and Euro-dollar futures, and spreads on mortgage swap, commodities currency, and hybrid equity and bond markets.
Straddles and Strips: These are combination option trading strategies which involve taking a position in both calls and puts on the same stock. Of these, the straddles are the most common strategy. It involves buying equal amounts of puts and calls with the same strike price, the same underlying asset index or currency, and the same expiration date.

Define Investment Derivatives