If you want to understand the mind-boggling complexity of the world of derivatives-a world inhabited by such fierce creatures as swaps, diffs, quantos, and inverse floating-rate notes-Charles W. Smithson suggests you start by thinking about puppies.

"Think what you're doing when you agree to buy a puppy when it is weaned for a certain price," he said. "If you can understand that concept, you'll have a basic understanding of foreign exchange derivatives, commodity derivatives, just about the whole bit.

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