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Traditional Financial and Derivative Financial Instruments

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What is meant by the term underlying as it relates to derivative financial instruments?

What are the main distinctions between a traditional financial instrument and a derivative financial instrument?

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This solution discusses traditional and derivative financial instruments.

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Derivative financial instruments are financial contracts whose values depend on the value of an underlying asset, such as an interest rate, foreign exchange rate, credit spreads, commodities and equity, reference rates, or index. The biggest thing about derivatives is that they enable their users to hedge or alter market and credit ...

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