Write the meaning of financial derivatives.

Financial derivatives are financial instruments whose value is derived from an underlying asset, index, or reference rate. They are used to hedge risks, speculate on price movements, or lock in future prices. Common types include:

• Futures: Standardized contracts to buy/sell an asset at a fixed price on a future date.
• Options: Contracts granting the right (but not obligation) to buy (call) or sell (put) an asset at a set price.
• Swaps: Agreements to exchange cash flows (e.g., interest rate swaps).
• Forwards: Customized, over-the-counter contracts similar to futures but not exchange-traded.

Derivatives allow businesses to manage exposure to market fluctuations without owning the underlying asset, enhancing efficiency in capital markets. Their value fluctuates based on changes in the underlying variable (e.g., stock prices, interest rates, or commodities).