Klandy2

A derivative can be anything whose value is based on something else. In other words, derivatives are contracts whose value is realized by either financial or real assets. The latter, from which the derivative gains its value, are known as the underlying assets, and if their value changes, the derivatives value changes as well. According to Sundaram (2011), derivative products can be of two types; commodity derivatives and financial derivatives. As for the financial derivatives, their contracts are written on financial assets, while for the commodity derivatives their contracts are written on real assets. For example, in the United States, the farmers from the interior areas use derivatives a lot. They use these contracts to sell their harvest on agreed price even before they have grown their crops, which help them to maintain regular selling process once those crops are harvested. The value of the derivative will be based on the value of the harvest yielded. Derivatives are used by var...