Derivatives overview - orange juice analogy

Vocabulary flashcards based on the orange juice analogy used to explain derivatives.

Derivative

A financial instrument whose value is derived from the price of another asset (the underlying).

Underlying asset

The asset from which a derivative's value is derived; in the analogy, the price of orange juice.

Financial derivative

A contract whose payoff depends on the price of an underlying asset; conceptually similar to the orange juice analogy.

Orange juice price analogy

An analogy showing how derivatives mirror movements in the price of a commodity, illustrating how the underlying price drives derivative value.