Can someone easily define what financial derivatives are?
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29-03-2013, 06:06 PM
Question Can someone easily define what financial derivatives are?
Define and give an example of it. Pretend as if you were trying to explain it to a child, using only common speech and terms.
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29-03-2013, 06:16 PM (This post was last modified: 29-03-2013 06:19 PM by Aseptic Skeptic.)
RE: Can someone easily define what financial derivatives are?
Is this another homework assignment?

Maybe this will help:

Click Here

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29-03-2013, 06:27 PM
RE: Can someone easily define what financial derivatives are?
(29-03-2013 06:06 PM)poolboyg88 Wrote:  Define and give an example of it. Pretend as if you were trying to explain it to a child, using only common speech and terms.

There are many types of derivatives as you can see from this list:

http://www.khanacademy.org/science/core-...securities

All these are 5-15 minute talks that are clear, concise and easy to understand.

Then there are talks on money and banking:

http://www.khanacademy.org/science/core-...nd-banking

Look through these lists and see if any can help you.

From your question I think you may be looking for Collateralized Debt Obligations?

http://www.khanacademy.org/science/core-...n-overview

“I am quite sure now that often, very often, in matters concerning religion and politics a man’s reasoning powers are not above the monkey’s.”~Mark Twain
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29-03-2013, 07:43 PM
RE: Can someone easily define what financial derivatives are?
I see the first poster is equally at a loss. Please respond to the thread appropriately.

As for the posted online resources- resources are appreciated, but I'm asking specifically for a user to post a definition and example that can be understood by anyone. Posting links to online resources without also including a definition and example only shows that the material wasn't suitable enough for even the poster to form a definition - or the poster didn't actually review the material.
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29-03-2013, 08:17 PM
RE: Can someone easily define what financial derivatives are?
(29-03-2013 07:43 PM)poolboyg88 Wrote:  I see the first poster is equally at a loss. Please respond to the thread appropriately.

As for the posted online resources- resources are appreciated, but I'm asking specifically for a user to post a definition and example that can be understood by anyone. Posting links to online resources without also including a definition and example only shows that the material wasn't suitable enough for even the poster to form a definition - or the poster didn't actually review the material.

Man, you try to help a guy out and he shits on you. You don't know what you're asking since there will be a different definition for each of the following Financial Derivatives: CDO's, CDS's, Options Contracts and MBS's.
How's that for appropriate?

“I am quite sure now that often, very often, in matters concerning religion and politics a man’s reasoning powers are not above the monkey’s.”~Mark Twain
“Ocean: A body of water occupying about two-thirds of a world made for man - who has no gills.”~ Ambrose Bierce
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29-03-2013, 09:01 PM
RE: Can someone easily define what financial derivatives are?
I have a theory that suggest that everything is a derivative of the Constitution, since it is the highest law in the land.

Humanism - ontological doctrine that posits that humans define reality
Theism - ontological doctrine that posits a supernatural entity creates and defines reality
Atheism - political doctrine opposed to theist doctrine in public policy
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29-03-2013, 10:52 PM
RE: Can someone easily define what financial derivatives are?
At a loss? I helped you out, gave you a link that explains everything. Did you click it? Are you saying it didn't help?

What more do you need?

You should go back and click it. Really.

"Whores perform the same function as priests, but far more thoroughly." - Robert A. Heinlein
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29-03-2013, 11:22 PM (This post was last modified: 30-03-2013 02:47 AM by Bucky Ball.)
RE: Can someone easily define what financial derivatives are?
(29-03-2013 07:43 PM)poolboyg88 Wrote:  I see the first poster is equally at a loss. Please respond to the thread appropriately.

As for the posted online resources- resources are appreciated, but I'm asking specifically for a user to post a definition and example that can be understood by anyone. Posting links to online resources without also including a definition and example only shows that the material wasn't suitable enough for even the poster to form a definition - or the poster didn't actually review the material.

A "derivative" is a *financial instrument* whose value is based on something else. A financial instrment is something like a bond. It has value. A *derivative financial instrument* is one that "derives" it's value based on the value of something (underlying) else. For example, there are "deriviatives" called "options". You can look up what exactly they are. But simply put, the value of the option goes up as the value of their underlying asset goes up, and vice-versa. For example a derivative based on the Dow, goes up or down as the Dow goes up or down. So if I have a "call" option, (the right to buy the Dow certain level), for example the right to buy a share the Dow Jones Spider at 14,000, and the Dow goes up a little, then the call's value goes up too, as it *derives" (or moves along with), it's value from the Dow's value. Make sense ? It's very simple. Some deratives can be a little complicated, (credit default swaps, and complicated option strategies), but the idea is simple. Many have expiration dates, and their valuse is also dependent on how close the expiration date is. ALso part of the value is based on the volatility of the underlying asset. The more volatile, the higher the price of the deriviative, usually.

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30-03-2013, 01:59 AM
RE: Can someone easily define what financial derivatives are?
(29-03-2013 06:06 PM)poolboyg88 Wrote:  Define and give an example of it. Pretend as if you were trying to explain it to a child, using only common speech and terms.


OK....I will explain one piece at a time.

There are a class of investments such as stocks, bonds, auto loans, mortgages, etc. and each of these has a common trait: their value is backed directly by physical and tangible assets.

Now...let's pause and ask the question: Do you understand so far?

Also...if there is the slightest bit of misunderstanding on your part, then please ask now.
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30-03-2013, 02:40 AM (This post was last modified: 30-03-2013 02:46 AM by PeterKA.)
RE: Can someone easily define what financial derivatives are?
I would advise reading "the big short" for a full explanation. But as I am typing on my phone in an airport here you go.
A derivative is a packaged bond issue who's value is perceived as being the combined value of its individual parts at some time in the future

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