What is the difference between a financial contract and a financial derivative?

What is the difference between a financial contract and a financial derivative Introduction: The World of Finance Hello everyone, and welcome to our video on the distinction between financial contracts and financial derivatives. In the vast realm of finance, numerous instruments facilitate transactions and investments. Two such instruments, financial contracts and financial derivatives, often come into play. While they may seem similar at first glance, they possess distinct features and serve different purposes. Let's dive in! Financial Contracts: A Foundation Financial contracts, as the name suggests, are agreements between two or more parties. These contracts outline the terms and conditions of a financial transaction, including the rights and obligations of each party involved. They serve as the bedrock of financial dealings, providing a legal framework for various activities. Examples of financial contracts include loan agreements, insurance policies, and even simple purchase contracts. Financial Derivatives: A World of Possibilities Financial derivatives, on the other hand, are instruments whose value is derived from an underlying asset or benchmark. Unlike financial contracts, derivatives don't represent ownership of the asset itself, but rather a contract based on its value.