Derivatives. Not much being said lately on them but a lot has been said on bank failures of as late. I do not understand why not, they are directly related. In math a derivative of a function is, in the most simple terms, “ the rate of change of the function’s output relative to its input value ”. Easy enough, but in financial terms a derivative is “ a type of financial contract whose value is dependent on an underlying asset , group of assets, or benchmark ”. Again, that sounds simple enough, but there is far more to it than the textbook mentions. Yes, far more to it. Ostensibly, they are used to “ hedge a position, speculate on the directional movement of an underlying asset, or give leverage to holdings…. It’s important to remember that when companies hedge, they’re not speculating on […]
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