1 - What are derivatives?
[Speaker 1] So… What's the problem with her?
[Speaker 2] Oh, it's nothing. She's great! She works at a bank! We have the same taste. She's amazing!
[Speaker 1] And?
[Speaker 2] We were at a tapas bar. There was music. We were talking. She was telling me about her job... Bam. Derivatives.
[Speaker 1] Ah, derivatives! Don't you know what they are? Okay, let's say you decide to take your girlfriend on holiday.
[Speaker 2] I do?
[Speaker 1] It's an example. You buy two plane tickets today for a trip in two months’ time, €1,000 for both tickets. Two months later, boom! The price of kerosene goes up. You get to the airport with your girl and they tell you the tickets are now €1,500. Would you be okay with the airline increasing your cost because kerosene is more expensive than they thought?
[Speaker 2] Of course not.
[Speaker 1] That's right, because prices are guaranteed. And how do you think the price of public transport, cars, a loaf of bread and all the consumer goods are guaranteed? With derivatives! And that's her job. The bank where she works uses derivatives to guarantee how much airlines pay for their fuel for a given amount at a given date, regardless of what happens to the exchange rate, share prices or production cost.
[Speaker 2] Oh, okay. And that's what my girlfriend does?
[Speaker 1] Yep, that's what she does.
[Speaker 2] I'm so dead…
[Speaker 1] You are toast.