Derivative
A derivative is a financial contract whose value derives from an underlying asset, rate or index rather than having independent value of its own. Forwards, futures, options and swaps are the main types.
FrameworkIFRS 9
See it move
A firm holds a derivative fixing the price of 100 tonnes of steel at €600 per tonne. If the market price rises to €650, the derivative is worth (€650 − €600) × 100 = €5,000 to the holder — independent of whether the company ever takes physical delivery of the steel.
Check yourself
A firm holds a derivative giving it the right to purchase 50 tonnes of copper at a fixed price of €8,200 per tonne. At the settlement date the market price is €8,900 per tonne. What is the value of the derivative to the firm at settlement, ignoring any premium paid for it?