Example You enter into an agreement with your friend that says: If the price of a bushel of corn in one year is greater than $3, you will pay your friend $1 If the price of corn is less than $3, the friend will pay you $1 This is a derivative Charles cao 5Charles Cao 5 Example ◼ You enter into an agreement with your friend that says: ◼ If the price of a bushel of corn in one year is greater than $3, you will pay your friend $1 ◼ If the price of corn is less than $3, the friend will pay you $1 ◼ This is a derivative