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MARKET IN INDIA
What is a Derivative?
The
Need Of Derivative
Example:
The growth rate of any company , the profit or loss it
made, etc
Basic Terminologies
Spot
Characteristics of
Derivatives
Underlying - the rates or prices that relate to the asset or
liability underlying the derivative instrument
Notional amount - the number of units or quantity that are
specified in the derivative instrument
Minimal initial investment - a derivative requires little or no
initial investment because it is an investment in a change in
value rather than an investment in the actual asset or liability
No required delivery- generally the parties to the contract, the
counterparties, are not required to actually deliver an asset
that is associated with the underlying
TYPES OF DERIVATIVES
FORWARD
FUTURES
OPTIONS
SWAPS
Forward Contracts
A contract to buy or sell a specified
amount of an asset at a specified fixed
price with delivery at a specified
future point in time.
The value of the contract at inception
is zero and typically does not require
an initial cash outlay.
The total change in the value of the
forward contract is measured as the
difference between the forward rate
and the assets spot rate at the
FUTURES MARKETS
OPTIONS
An option is the right but not the obligation to buy
or sell a financial asset at a predetermined price.
Two types of options: Call Options: The right to
buy
Put options: The right to
sell
Two styles of options:
SWAPS
Swaps
are arrangements in
which one party trades
something with another party
The swap market is very large,
with trillions of dollars
outstanding in swap agreements
Currency swaps
Interest rate swaps
Commodity & other swaps - e.g.
Natural gas pricing
10
Trading
Participants
Conclusion
Derivatives are gaining popularity day
by day and are used successfully
through out the world, these are
providing substitute for badla system.
These are providing hedge open
position in both cash and future
markets.
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