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A derivative is a financial instrument whose value depends, at least in part, on the value of a related asset or liability.

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In essence, its value is "derived" from the values of some underlying asset such as a commodity or stocks. For example, if an individual or business owns an option to purchase 1,000 shares of a particular stock at a set price, the value of the option will increase as the value of the stock increases. Risk managers and financial officers often deal in derivatives as a technique for managing their business risks.