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Content:
Introduction
Introduction
Derivatives are synthetic instruments
commodities.
Common underlying theme of derivatives is that
markets.
Development of more sophisticated risk management
tools.
Types of Derivatives
Futures/Forwards.
Options Swaps Baskets Swaptions
markets Hedge against underlying asset class Arbitrage position within an asset class Speculators Hedgers Arbitrageurs
commodities
Financial asset classes: Interest rates, equities and
currencies
Commodities range from agricultural commodities to
Economic Functions
Leverage
Speculate & make a profit Hedge or mitigate risk in the underlying Obtain exposure to the underlying
Benefits
Derivatives facilitate the buying and selling of risk.
Helps increasing Buying in the underlying. Create Liquidity in the Market.
Criticism
Possible large losses.
Counter-party risk. Leverage of an economy's debt.
Derivatives in India
The structured derivative market in India is relatively new (about 10 years old) However derivatives have caught the fancy of the market and exchange traded equity and commodity derivatives are vibrant.