What are derivatives and annuities?

Answer 1

A derivative is an instrument derived from an underlying asset or security. The derivative, such as a stock option, does not affect the underlying asset, such as stocks in the case of a stock option. It merely gives the owner of the derivative certain rights and obligation. Using the UK as an example, a UK stock option gives the owner the right to buy or sell the underlying shares at a given price. A UK Future would give the onwer the obligation to buy or sell the underlying shares at a given price. Consequently, the underlying share have an immediate affect on the derivatives but the affect of the derivatives is not quite immediate or drastic.

An annuity in the UK is associated with pensions. An annuity is purchased for a capital sum, typically the amount of money in your pension. In exchange, it provides you with a regular income until your death. Current UK legislation requires your pension to purchase an annuity by your 75th birthday. However, an annuity does not necassarily have to be purchased by a pension. However, it is generally regarded that annuities are not good purchases, particularly in the days of relative low interest rates.

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Answer 3

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