Explain the concept of a derivative.

Explain the concept of a derivative. 

Ans. Derivative means a hybrid contract of pre determined fixed duration, linked for the purpose of contract fulfilment to the value of a specified real or financial asset or index of securities. Derivative means any value which is not independent. It has been derived from the value of underlying asset. It means a forward, future, option or any other hybrid contract. They are called “deferred delivery of deferred payment instruments”. Derivative contracts are somehow similar to securitized assets but they are not backed like them by the original issuer of the underlying asset or security.