DERIVATIVE MARKET

“ABSENCE OF DERIVATIVE MARKETS MAKE DOMESTIC

FIRM LESS COMPETITIVE LOCALLY & GLOBALLY & THE
DOMESTIC MARKETS LESS ATTRACTIVE & IMPERFECT.
THERE WILL BE UNFILLED GAP IN THE FINANCIAL
STRUCTURE. INCREASED INTERLINKAGES OF MARKETS
DUE TO GLOBALIZATION MARKET IT NECESSARY TO
PROMOTE THE DERIVATIVE WHICH LEAD TO
SOPHISTICATION OF THESE MARKETS WHICH LEADS TO
SOPHISTICATION OF THESE MARKETS BY FILLING UP
THE GAP”

:- V.A.AVADHANI
HOW YOU IMPROVE FINANCIAL
STRUCTURE

Derivative Market Offshore Financing

Pricing
Derivative Product
Trading

Derivative Risk Management

DERIVATIVES

It is a product

Financial

Structure
WHAT DOES STRUCTURED FINANCE MEAN?

A service that generally involves highly complex

financial transactions offered by many large
financial institutions for companies with very
unique financing needs. These financing needs
usually don't match conventional financial
products such as a loan.
STRUCTURE FINANCIAL PRODUCTS

A non traditional process of creating

& fabricating a wide variety of
financial product whose values are
linked to or derived from one or more
underlying assets
WHY STRUCTURE FINANCIAL PRODUCT?

 Less regulatory framework

 Greater return
 To protect investors against market price volatility
 Participate in the international markets with less
cash exposure
 Greater flexibility than the traditional product like
Stock, Bond, Loan etc.
BENEFIT OF STRUCTURE FINANCIAL PRODUCT:
 lowering the funding cost to corporate & Govt.
issuers. Favorably increasing their visibility in the
international capital market.

 Portfolio protection to investors.

 Help brokers-jobbers in recruiting internal sales

people & a significant marketing strategy.

 Facilitating investor demand for timely, innovative,

investment product.
LIMITATION:

 Lack of Regulation.

 Innovation.

 Lack of Secondary trading liquidity.

WHO USES THE STRUCTURE FINANCIAL PRODUCT..

 High net worth individuals.

 Fund managers.
 Govt.& Govt. agencies.
 Retail investors.
 Corporate executives.
 Corporations.
 Insurance companies.
 Exchanges.
 Commercial bank.
 Arbitragers.
 Investment bank.
 Financial intermediaries.
WHAT ARE DERIVATIVES.

It is a structure financial instrument whose value is derived

from the value of the other basic underlying variables such as
foreign exchange, T.B, bonds, shares, commodities, currencies
or other marketable securities (Gold, Silver or other valuable
assets)
FEATURES.

 Transfer of risk for investment opportunities

available to individuals & institutions.

 The risk such as interest rate & currency risk can be

assessed separately.

 Provide tools to undertake highly leveraged

speculative position.
WHY DERIVATIVES.

 Minimize the risk Market

Commodity Price

Foreign Exchange

With the help of hedging concept.

CONT…….

 To promote the superior allocation of resources so as to

Maximize Return.

Minimize Risk

 Better Capital Formulation.

 Higher Economic Growth.

OBJECTIVES OF DERIVATIVE CONTRACT.
 Itplay a vital role in enhancing shareholder value by
ensuring access to the cheapest source of funds.
 It minimize the impact of fluctuations in asset prices
on the profitability & cash flow situations.
 It allow the overall business risk profile to be modified.
 To offset the risk of price changes in the underlying
assets.
DERIVATIVE CONTRACT.

Every derivative contract has a fixed expiration date,

generally ranging from 3 to 12 months from the date
of commencement of contract.
STRUCTURE OF DERIVATIVES.
 Options:
 Commodity.
 Financial.
 Futures:
 Commodity.
 Financial.
 Forwards:
 FRAs ( Forward rate agreements)
 FFECs ( Forward foreign exchange contracts )
 FCCs ( Forward commodity contracts )
 Complex Derivatives:
 Warrants.
 Swaps.
 FRAs.
 Range Forward.
 Exotic options.
 Synthetic.
 Credit.