Professional Documents
Culture Documents
TEAM
MEMBERS:
1.APEKSHA
JAIN
2.SNEHA
AGARKAR
3.SAUMITA
PITRE 1
Meaning/Definition of
Derivative
Derivative is a product/ financial instrument
whose value is derived from an underlying
asset.
International Monitory Fund (IMF), defines
derivatives as, “Derivatives are financial
instrument,
that are linked to a specific financial
instrument or indicator or commodity and
through which specific
financial risk can be traded in financial
markets in their own right.’’ 2
Reasons for Development
3
Participants in the market
4
Advantages of derivative
market
5
Advantages of derivative
market
6
Types of Derivatives
7
Types of Derivatives
8
Types of Derivatives
9
Emergence/History of
Derivative Market
Liberalisation in the economy.
Demutualisation and corporatisation.
Integration of financial market
Improvement Information technology
Advancement in communication system
Reduced cost of transaction
10
Regulatory framework
11
L.C. Gupta Committee
Recommendations
13
Amendments in SC(R)A
• The clearing and settlement of derivatives trades
would be through a SEBI approved clearing
corporation/house.
• Clearing corporations/houses have to apply to SEBI
for grant of approval.
• Derivative brokers/dealers and clearing members
are required to seek registration from SEBI. This is
in addition to their registration as brokersof
existing stock exchanges.
• Strict enforcement of KYC norms
• Disclosure of risk clause compulsory in documents
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Futures
15
Distinguish between Forwards &
Futures
Forward contract Futures contract
Counter party risk always exist No counter party risk exist, as the
contract is made with Clearing
Corporation.
Profit or loss is booked on conclusion of Here the contracts are marked to market
the contract. on a daily basis. Therefore, the booking
of profit & loss is made daily
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Types of Futures
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Future Terminology
Spot price
Future Price
Contract cycle
Expiry dates
Contract size
Initial Margin
Marking to Market
Maintenance Margin
18
Pricing of Stock Futures
19
Comparison Between Cash
Market & F&O Market
Particulars Cash Market F&O Market
20
Accounting For Futures
1. Accounting at the inception:
Initial Margin paid to be debited:
“ Initial Margin- Futures A/c”
Additional Margins to be accounted as above.
When contract is made no enrty to be passed.
On the Balance Sheet date the above account is
shown under the heads Current Assets.
Initial Margin in the form of Bank guarantees or by
lodging securities should be disclosed in notes to A/cs.
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Accounting For Futures
2. Accounting at the time of daily
settlement :
Payments made or received on account of
daily settlement is credited/debited to:
“Mark-to-market margin - Futures A/c”
22
Accounting For Futures
23
Accounting For Futures
25
Option Terminology
Index options
Stock options
Buyer of an option
Writer of an option
Call option
Put option
Option price/premium
Expiration date
26
Option Terminology
Strike price
American options
European options
In-the-money option
At-the-money option
Out-of-the-money option
Intrinsic value of an option
27
Pricing Options
28
Black & Scholes
29
Payoff for Investor Who Went
Long Nifty at 2220
30
Payoff for Investor Who Went
Short Nifty at 2220
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Payoff For Buyer Of Call
Option
32
Payoff For Writer Of Call
Option
33
Payoff For Buyer Of Put
Option
34
Payoff For Writer Of Put
Option
35
Payoff For A Bull Spread
Created Using Call Options
36
Payoff For A Bear Spread
Created Using Call Options
37
Accounting for options
38
Accounting for options
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Accounting for options
40
Accounting for options
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Accounting for options
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Taxation
43
THANK YOU
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