1) What makes a derivative different from a primary financial instrument? (150 words)

2) What are the three cost categories related to derivatives? Please state what they are and explain what benefits derivatives have that would offset these costs. (150 words)

3) What is the difference between net settlement and gross settlement of an options contract where the value of the underlying asset is greater than the strike price (often colloquially referred to as being in the money)? (150 words)