what's a derivative?

Discussion in 'Financial Cents' started by Tango3, Jul 23, 2009.

  1. Tango3

    Tango3 Aimless wanderer

    here'sth simplest explanation yet (from the latoc board):
    A derivative is a contract, that is all.

    It "derives" it's value from something else ... the price of stocks, interest rates ... whatever.

    If you have a contract that says that somebody owes you $1000, and you wrote a contract that ways that you owe somebody else $1001. Then, in theory you are liable for $1, and the total "notional" value of both contracts is $2001 dollars.

    However, in practice when the financial system goes to hell you won't get paid, but you will still owe 1001 dollars, even though you think you just owe $1.

    So why is this important? Because the notional value of derivatives on wall street is 500 Trillion Dollars, and the economy is going to hell.

    More simply stated, everybody in the USA is in the hole for over a million dollars. This should give you a notion of how much the Federal Reserve is willing to bail out wall-street and hyper-inflate to keep the financial system from collapsing.

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  2. Tango3

    Tango3 Aimless wanderer

    aint getting their million from me...
  3. RouteClearance

    RouteClearance Monkey+++

    Errrr, comeon T, we know you have that special mattress just stuffed with greenbacks, :oops::oops:and when they find your secrete mattress, go on ahead and pay my share also.
  4. Tango3

    Tango3 Aimless wanderer

    Okay but only because you're you man..[fnny] And I haven't had a "secrete" mattress since I turned 12 and put up the farah fawcett poster :flash:inmy room.[ROFL][ROFL]:oops::oops::rolleyes::lol:Oh no you didn't jes say dat! Ohyes I did..[yukface][gone]
  5. overbore

    overbore Monkey++

    Are you old enough to remember a "falsie"???????

    Same thing- what you see is not what you get!!!!

    Laus Deo

  6. ghrit

    ghrit Bad company Administrator Founding Member

    Occasional surprises in the past. :lol:
  7. Tango3

    Tango3 Aimless wanderer

    Hey! you're right that use( "secrette : to hide" vs. "secrette: produce biological fluids") just escaped me for a second there. As usual I thought mine was funny...
  8. QuietOne

    QuietOne Monkey++

    So a derivative is to money as a falsie is to... :rolleyes:
  9. Tango3

    Tango3 Aimless wanderer

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