The term 'Derivatives' indicates it derives
its value from some underlying i.e. it has no independent value. Underlying can
be securities, stock market index, commodities, bullion, currency or anything
else. From Currency Derivatives market point of view, underlying would be the
Currency Exchange rate. To put it simply an example of Derivatives is curd which
is derived from Milk. Derivatives are unique product, which helps in hedging the
portfolio against the future risk. At the same time, derivatives are used
constructively for arbitrage and speculation too.
