Business and Personal Finance Dictionary

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• DERIVATIVE
  
  Derivatives are hybrid investments, such as futures contracts, options, and mortgage-backed securities, whose value is based on the value of an underlying investment. For example, the changing value of a crude oil futures contract depends on the upward or downward movement of oil prices. Certain investors, called hedgers, are interested in the underlying investment. For example, a baking company might buy wheat futures to help estimate the cost of producing its bread in the months to come. Other investors, called speculators, are concerned with the profit to be made by buying and selling the contract at the most opportune time. Derivatives are traded on exchanges, over the counter (OTC), and in private transactions.
  
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