If you read the financial columns you have probably seen the term “derivative.” A derivative on a stock is distinct from the stock itself but is related to it; derivatives play the same role in the stock market as side bets in a dice game. Derivatives can serve a wide spectrum of purposes—they can be used to increase leverage (and risks) but they can also serve as an insurance policy that minimizes risks.
KeywordsInterest Rate Stock Price Option Price Call Option Future Price
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