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Derivatives and Underlying Assets

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Derivatives and Underlying Assets

Products whose values are dependable and derived from the value of an underlying asset is called Derivatives.

The Underlying Asset could be Commodities, currencies, etc;

and the Product derived or dependable on it could be: Futures, Options, etc.

Commodities like Gold, Silver; which has value, are assets and the products whose value is derived and are dependable on these commodities (Gold, Silver, etc.)

You can consider Milk as an underlying asset which has a particular value say $3/liter.

And the derivatives can be cured, butter or cheese which has their own value but are dependable and derived from the value of the milk.

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