Okuzeka
Finance & Banking vocabulary · Treasury & Markets

Derivative

Meaning in finance & banking, with examples

/dɪˈrɪvətɪv/nounCommon term

In finance & banking, derivative means: A financial contract whose value depends on the price of something else, such as a currency, interest rate, share or commodity.

In Turkish: türev araç, türev ürün, türev

How it is used

Used in treasury, risk management and accounting. The main types are forwards, futures, options and swaps. Companies use derivatives to hedge risk, while traders may also use them to speculate. They are traded on exchanges or over the counter (OTC), directly between two parties.

Example sentences

  1. We use currency derivatives to hedge our export income.

  2. The board limited the use of derivatives to hedging only.

Common collocations

  • derivatives market
  • currency derivatives
  • OTC derivatives
  • derivative contract
  • interest rate derivatives
  • hedgeTo reduce the risk of losing money from changes in prices, interest rates or exchange rates, usually by taking an opposite position with derivatives.
  • forward contractAn agreement to buy or sell an amount of currency or another asset on a future date at a price fixed today.
  • swapA contract in which two parties exchange cash flows or currencies for a period, such as fixed interest payments for floating ones.
  • market riskThe risk of losses caused by changes in market prices, such as interest rates, exchange rates, share prices and commodity prices.
  • counterparty riskThe risk that the other party in a financial deal, such as a derivative, repo or FX trade, fails to pay or deliver what it owes before the deal is completed.

This word in other fields

The same English word can have a different meaning in another field:

More terms: Treasury & Markets

Practise with graded reading

Reading at the right level is the fastest way to make new words stick. Pick free English books by level:

This page explains English vocabulary for learners. It is not financial advice.