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    Use of derivatives: why or why not?

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    What is the definition of a derivative and give an example. What is one way you would use derivatives?

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    The definition of a derivative: " is a financial instrument whose characteristics and value depend upon the characteristics and value of an underlier, typically a commodity, bond, equity or currency.

    Examples of derivatives include futures and options.
    http://www.investorwords.com/1421/derivative.html

    They can be used for protection against downside risk, but they also can be used to generate income. Buying and selling options is a risky and fast ...

    Solution Summary

    The solution explains the general definition of a derivative following by an example of using a covered call to demonstrate the use.

    $2.49

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