Derivatives are instruments derived from other securities, known as underlying assets (since the derivative is derived from them). Broadly, they are a type of security. The price, risk level, and function of the derivative are all determined by the underlying assets, as anything that affects the underlying asset must also affect the derivative. In developed economies, derivatives are mostly used. A derivative could be an asset or an index too.
Futures, Swaps, Rights, Exchange-Traded Funds or Commodities, Mortgage-Backed Securities (MBS), Asset-Backed Securities (ABS), and Options are examples of derivatives.
The common derivative in Nigeria are Rights where the owner of an existing security is given the opportunity to add to his holdings in an allocated ratio.
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