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Notional amount refers to the physical amount of currency or product that is determined by the contract. The combination of notional amounts and the underlying will show the amount of the settlement if the settlement is indeed required. The last term used in the definition, payment provisions, is used to show a specific settlement given that the underlying acts in a certain manner.
The second characteristic of a derivative instrument is that it will not require any or a minimal initial net investment. The minimal initial net investment is considered to be an initial investment that is less than a similar instrument considering the current market conditions...
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