Question 1
a)A derivative is an asset whose performance, and hence value, is derived from the behaviour
of the value of an underlying asset (the “underlying”). ▪ Derivatives are contracts that give
the right, and sometimes the obligation, to buy or sell a quantity of the underlying, or benefit
in some other way from a rise or fal in the value of the underlying. ▪ Examples are forward,
futures, options and swaps.
Stocks give you partial ownership in a corporation, while bonds are a loan from you to a
company or government. The biggest difference between them is how they generate profit:
stocks must appreciate in value and be sold later on the stock market, while most bonds pay
