From a part of the research papers by Don Chance, a professor of finance referred about the origin of derivative as, “Around 580 B.C., Thales the Milesian purchased options on olive presses and made a fortune off of a bumper crop in olives. So derivatives were around before the time of Christ”. (p. 1)
Clearly Don’s research explained that people have been living with derivatives for years. Thales had great skill in forecasting and predicted that he could use his prediction to guarantee the harvest to request the discount in the future at the time. Traditional trading started from something that closer to daily living than most people though, such as crops.
There are three basic types of derivatives: Financial, Commodity, and Foreign Exchange.
• Financial derivatives are contract between two parties who agree to exchange for agreement to buy or sell goods or services at the future date, also called maturity date.
• Commodity derivatives are the investment tools that buyers participate to have the right to exchange a commodity at a certain price in the future. Commodity allows to buyers to use small amount of money to exchange for bigger benefit in the high risk rate.
• Foreign Exchange derivatives are foreign exchange transaction which using currencies as the tool to invest. It allows buyers to convert one currency to another currency.
Derivatives are one of the major financial and investment activities which are not depend on the size of…