DERIVATIVE

MARKET IN INDIA

PRESENTED BY:Priyadarshani kumari

Puja kumari

What is a Derivative?
The

term Derivative stands for a contract whose price is

derived from or is dependent upon an underlying asset.
The underlying asset could be a financial asset such as
currency, stock and market index, an interest bearing
security or a physical commodity.
As Derivatives are merely contracts between two or more
parties, anything like weather data or amount of rain can be
used as underlying assets.

Need Of Derivative

Derivatives have arisen from the need to manage the risk

arising from movements in markets beyond our control ,which
may severely impact the revenues and costs of the firm.
Derivatives can be used in a number of ways in everyday life,
especially with optimization.

Example:
The growth rate of any company , the profit or loss it
made, etc

Basic Terminologies
Spot

Contract: An agreement to buy or sell an asset

today.
Spot Price: The price at which the asset changes
hands on the spot date.
Spot date: The normal settlement day for a
transaction done today.
Long position: The party agreeing to buy the
underlying asset in the future assumes a long position.
Short position: The party agreeing to sell the asset in
the future assumes a short position
Delivery Price: The price agreed upon at the time the
contract is entered into.

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

Future is a contract to buy or sell

specific quantities of a commodity or
financial instrument at a specified
price with delivery set at a specified
time in the future.

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:

American options: Can be exercised at any time till

expiration, European options can only be exercised on the
maturity date.

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

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Trading
Participants

in the stock market range

from small individual stock investors
to large hedge fund traders, who can
be based anywhere.

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.

THANK YOU