ABSTRACT
Derivatives have been the financial phenomenon of the 1990s. Their name comes from the fact that their value is derived from that of some other underlying financial instrument, the derivative contract relating to some aspect such as forward pricing, optional delivery, leveraged returns and so on. Their growth began as a response to the volatility in the financial markets in the 1980s coupled with deregulation in the major countries. The principal markets that are the subject of this section are forward rate agreements, financial futures and options, interest rate and currency swaps and credit derivatives. These markets do not work in isolation of each other or of the markets in the underlying financial commodities. This is aptly illustrated by the name of one of the products, a swaption, or option on a swap.
