Financial Derivatives

1 Evolution and features of Derivatives 
•Imagine you have a delicious mango. Now, imagine you have a piece of paper that represents that mango and its future price. That piece of paper is like a derivative.

•In finance, a derivative is a financial contract whose value is derived from an underlying asset, or group of assets. Think of it like this: the value of the “mango paper” depends on the actual mango’s price.

•Underlying assets can be almost anything:

•Stocks: Shares of a company

•Bonds: Debt instruments

•Commodities: Raw materials like oil, gold, wheat, coffee, etc.

•Currencies: Different national currencies (e.g., US Dollar, Indian Rupee)

•Interest Rates: The cost of borrowing money

•Market Indices: A group of stocks, like the Nifty 50 or Sensex.