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Meaning of Derivatives

• Derivative is a contract or a product whose


value is derived from value of some other
asset known as underlying.
Derivatives are based on wide range of
underlying assets.
• Metals such as Gold, Silver, Aluminium,
Copper, Zinc, Nickel, Tin, Lead
• Energy resources such as Oil and Gas, Coal,
Electricity
• Agri commodities such as wheat, Sugar,
Coffee, Cotton, Pulses and
• Financial assets such as Shares, Bonds and
Foreign Exchange.
Milestones in the development of
Indian derivative market
• November 18, 1996- L.C. Gupta Committee set
up to draft a policy framework for introducing
derivatives
• May 11, 1998- L.C. Gupta committee submits
its report on the policy framework
• May 25, 2000 -SEBI allows exchanges to trade
in index futures
• June 12, 2000- Trading on Nifty futures
commences on the NSE
Contd..
• June 4, 2001 -Trading for Nifty options
commences on the NSE
• July 2, 2001 -Trading on Stock options
commences on the NSE
• November 9, 2001- Trading on Stock futures
commences on the NSE
• August 29, 2008- Currency derivatives trading
commences on the NSE
Contd..
• August 31, 2009 -Interest rate derivatives
trading commences on the NSE
• February 2010 -Launch of Currency Futures on
additional currency pairs
• October 28, 2010 -Introduction of European
style Stock Options
• October 29, 2010- Introduction of Currency
Options
Indian Derivatives Market
• SEBI set up a 24–member committee under
the Chairmanship of Dr. L. C. Gupta.
• The committee submitted its report on March
17, 1998.
• SEBI set up a group in June 1998 under the
Chairmanship of Prof. J.R.Verma.
• The committee submitted its report in
October 1998.
Features of Derivatives
• Derivative are of three kinds future or forward
contract, options and swaps and underlying assets can
be foreign exchange, equity, commodities markets or
financial bearing assets.
• As all transactions in derivatives takes place in future
specific dates.
• Derivatives have standardized terms due to which it
has low counterparty risk.
• When value of underlying assets change then value of
derivatives also changes and hence one can construct
portfolio which is needed by one and that too without
having the underlying asset.
Participants
• Hedgers
• Speculators
• Arbitrageurs
Products
• Forwards
• Futures
• Options
• Swaps
Products in Derivative markets
Products
• Call option
• Put option
Difference between Forward and
Futures
Difference between Futures and
Options
Interest Rate Swaps
Interest Rate Swaps
Importance

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