Futures play an important role in the field of finance. Many kinds of futures instruments have been developed and the use of futures has received a great deal of attention. Futures contract like options are important derivative instruments and a major innovation in the field of risk management. FEATURES OF A FUTURES CONTRACT A futures contract is a standardized forward contract. An agreement between two parties to exchange an asset for cash for a predetermined future date for a price that is specified today represents a forward contract. The terms which are used in futures contract are: Short position: This commits the seller to deliver an item at the contracted price on maturity. Long position: This commits the buyer to purchase an item at the contracted price on maturity. DIFFERENCES BETWEEN FORWARDS AND FUTURES A standardized forward contract is a futures contract. The differences are: • A forward contract is a tailor made contract (the terms are negotiated between the buyer and the seller),whereas a futures contract is a standardized contract(quantity, date and delivery conditions are standardized). • • • While there is no secondary market for forward contracts, the futures contracts are traded on organized exchanges. Forward contracts usually end with deliveries, whereas futures contracts are settled with the differences. Usually no collateral is required for a forward contract. In a futures contract, however a margin is required.


Intermediation by the Exchange: In a traded futures contract the exchange interposes itself between the buyer and the seller of the contract. and to prevent overreaction to real information. Marking-to-market: While forward contracts are settled on the maturity date. Price limits: Futures exchanges impose limits on price movements of futures contracts. Price limits are meant to prevent panic buying or selling. triggered by rumors. This means that the exchange becomes the seller to the buyer and the buyer to the seller. This means that profits and losses on futures contract are settled daily.• Forward contracts are settled on the maturity date. This means that the profits and losses on futures contracts are settled on a periodic basis. KEY FEATURES OF FUTURES CONTRACTS The key features of future contract are: • • • • • Standardization Intermediation by the exchange Price limits Margin requirements Marking to market Standardisation: Traded futures contracts are standardized in terms of asset quality. asset quantity. whereas futures contract are ‘marked to market’ on a daily basis. futures contracts are ‘marked to market’ on a periodic basis. The purpose of standardization is to promote liquidity and allow parties to the futures contracts to close out their positions readily. 4 . and maturity date.

while financial futures is a futures contract in a financial instrument like Treasury bond. currency . Hence perishable commodities have to be analyzed differently. The futures price of a perishable commodity is influenced by two factors mainly: the expected spot price of the underlying commodity and the risk premium associated with the futures position. Futures price= spot price+ present value of storage costsPresent value of convenience yield.FUTURES CONTRACTS: THE GLOBAL SCENE Broadly there are two types of futures: commodity futures and financial futures.or stock index. Contracts vary. Futures price= Expected spot price – Expected risk premium FINANCIAL FUTURES A financial future is a futures contract on a short term interest rate (STIR). cotton. COMMODITY FUTURES (PERISHABLE COMMODITIES) For pricing futures contracts on the basis of arbitrage. A commodity futures is a futures contract in a commodity like cocoa or aluminum. COMMODITY FUTURES (STORABLE COMMODITIES) Futures contracts on various commodities. oil. storable as well as perishable. aluminum. but are often defined on an interest rate index such as 3-month sterling or US dollar LIBOR. like gold. For a storable commodity buying in the spot and storing it until the expiration of the futures contract is equivalent to buying a futures contract and taking delivery at the maturity date. and wheat and orange juice have been in existence for nearly three centuries. rice. the asset has to be storable. 5 .

In finance. To exit the commitment prior to the settlement date. normally. then cash is transferred from the futures trader who sustained a loss to the one who made a profit. if it is a cash-settled future. Futures contracts. are exchange traded derivatives. sets margin requirements. or simply futures. In other words. which differs from an options contract. The pre-set price is called the futures price. The settlement price. etc. converges towards the futures price on the delivery date. at a specified price. a futures contract is a standardized contract. effectively closing out the futures position and its contract obligations. 6 . the holder of a futures position has to offset his position by either selling a long position or buying back a short position. SHORT-TERM INTEREST RATE FUTURES Contract specifications An assortment of contracts. the owner of an options contract may exercise the contract. but not the obligation. to buy or sell a certain underlying instrument at a certain date in the future. The future date is called the delivery date or final settlement date. The Eurodollar contract is the linchpin of the shortend interest rate futures contracts. The exchange's clearinghouse acts as counterparty on all contracts. traded on a futures exchange. which gives the holder the right. Both parties of a "futures contract" must fulfill the contract on the settlement date. or. no comparable contracts exist for other currencies. Other dollar-denominate short-term interest rate futures. The seller delivers the commodity to the buyer. The price of the underlying asset on the delivery date is called the settlement price. A futures contract gives the holder the obligation to buy or sell.

although trading in it only started as recently as 1981. The disadvantages of delivery in this case are of two kinds: (i) Eurodollar deposits are non-negotiable and hence delivery would bind the long to a three-month investment.S.S. Eurodollar deposits differ from domestic term deposits or certificates of deposit in the U.e. Trading of Eurodollar contracts: Eurodollar contracts are now traded at the CME in Chicago. The Eurodollar futures rate on any particular contract-month is essentially the 3-month LIBOR rate that is expected to prevail at the maturity of the contract. Thus.. (ii) heterogeneity of bank credits would systematically raise questions on the quality of the delivered asset. 7 . the rate at which a London bank is willing to lend dollars (i. at LIFFE in London and at SIMEX in Singapore.g. It is based on a ninetyday Eurodollar deposit. a price of 96. Contract settlement: Eurodollar contracts are settled in cash rather than with physical delivery (which would entail the short opening a time deposit on behalf of the long). The futures price is quoted as 100 minus the annualized futures 3-month LIBOR (e.5% per annum) in decimal terms.5 implies a futures LIBOR rate of 3.S. Basic contract specifications: The nominal contract size is $1 million and the underlying rate is the three-month LIBOR. or with an international banking facility (IBF) located in the U. which is a dollar-denominate deposit with a bank or branch outside of the U. Eurodollar contract trading is de-facto available 24 hours..S. in that they are not regulated by U. authorities and hence are not subject to reserve requirements or deposit insurance premiums.Eurodollar futures The Eurodollar futures market is the most widely traded money market contract in the world. the offer side of the cash money market).

applications with contracts based on different currencies. few contracts actually go into delivery. there may be as many as several dozen securities in the deliverable basket. Treasury bond futures contracts allow delivery of any U. All examples drawn below are based on the threemonth Eurodollar contract. Plus any accrued interest on the bond: 8 . Futures invoice price: When a bond is delivered into the bond futures contract.S. bond futures positions can also be unwound prior to delivery by offsetting futures transactions. Because this is more convenient for most futures users than physical delivery. U. bond futures contracts generally allow for a range of bonds to be delivered against them. we need to understand how prices of futures contracts are related to the spot or cash market prices of the underlying asset. bond futures are settled at expiration with physical delivery. INTERMEDIATE.S. the receiver of the bond pays the short an invoice price equal to the futures price times the conversion factor of the particular bond chosen by the short. years remaining to maturity (or to first call if the bond is callable). Of course. maturities or underlying asset constitute a straight-forward extension. T-bond that has at least I. We will see that the market forces of arbitrage are used to price virtually all financial futures contracts.Pricing and arbitrage: Implied forward rates In order to understand how futures prices are established. For example. all with different maturities and coupons.AND LONG-TERM INTEREST RATE FUTURES Contract specifications Deliverable securities: Unlike international bank futures contract. Also unlike the T-bill futures contract. Delivery cycle: At futures expiration there is uncertainty not only on the actual bond that will be delivered but also on the specific timing of the delivery.

bond futures contracts designed along the lines of the U. the last trading date and the last delivery period (one month).and long-term interest rate contracts: The U. Since 1932. In other words. Other U.S. T-bond contract have spread internationally. International bond futures contracts. the concrete specifications of the U. The basis. T-bond. medium. Since then three futures contracts have been established on U. Pricing and arbitrage Cash-futures relationship: Similar to short-term interest rate contracts. The contract size defines the par amount of the bond that is deliverable into the contract ($100. T-bond contract are shown in parentheses for illustrative purposes. where they are traded and the description of their deliverable set. It is the delivery option of the short that makes valuing bond futures more complex than valuing international bank (euro) deposit futures. T-bonds). For illustration purposes. June.S. traded at the CBOT since 1977. They all have similar characteristics to their forerunner. a 5year and a 2-year contract. Delivery months on bond futures contacts are quarterly (March. Understanding the relationship between a futures contract and the deliverable basket is crucial to understanding the drive behind the arbitrage.S.S. September and December). Treasury notes: a 10-year. there is an arbitrage relationship which holds the prices of the T-bond futures contract to the cash market. was the first fut3ureo n long-tern interest rates.000 for U. the table below lists the main international bond futures contracts. The basis is the difference between a bond's price and the futures invoice price (as defined above). The exchange will also set daily trading hours.Futures invoice price = futures price conversion factor + accrued interest Other contract terms: Exchanges set other futures contact terms as follows.S.S. it is the difference in cost between 9 .

Then one could: (i) buy (sell) the cheapest to.this conversion is performed simply by multiplying the decimal basis by 32. Accordingly. Risk management and hedging Basic risk management functions: Bond futures are often used as a vehicle for hedging price risk or duration. Hedge ratio: The construction of the hedge ratio for bond futures follows the same logic as that for international bank futures contracts developed in Chapter 2. Basis arbitrate at futures expiration: At futures expiration. Otherwise there would be instantaneous risk less profit opportunities. Recall that he basic formula is: Hedge ratio = scale factor x basis point value factor x volatility factor The scale factor is the ratio of the notional or principal amount of the asset being hedged and the futures contract size. The basis is generally quoted in 32nds rather than in decimal units . the gross basis must be equal to zero.(futures price conversion factor) since dirty (or full) price = clean price + accrued interest. Suppose. and (iii) immediately deliver (receive delivery of) the cash bond against the short (long) futures position. we define the gross or raw basis as: Gross basis = dirty cash price .and long-term interest rates can be offset by buying or selling bond futures contracts.futures invoice price = clean cash price .buying the bond in the cash market and buying a futures contract on it and having it delivered into the contract at expiration. for instance. An excessive exposure to intermediate. (ii) sell (buy) a bond futures contract. that the gross basis was negative (positive). The basis point value factor is the ratio of the change in the 10 .deliver bond in the cash market.

as was the case with international bank deposit futures. Playing duration with futures fulfills the same objective as playing the bond market directly. Going long the futures is a way of extending duration: it pays when the market is rallying and rates are falling. on the contrary.dollar value of the hedged asset to the change in the dollar value of the futures contract for a one basis point change in the interest rate. can be traded: * outright. using spreads or butterflies that combine longs and shorts at different points in time or across countries. Shorting bond futures. Expressing a market view Types of trades: The third application of bond futures. * in combination with other bond futures contracts. easy reversibility of positions and low cash requirements. requires by definition that not all risk be hedged. But because they track the cheapest-to-deliver bond (driven by basis traders). 11 . reduces market sensitivity to rate movements and performs well in a bear market. Bond futures. Outright trading: Bond futures by themselves don't have duration. The volatility factor can be set to one if bond futures are used to hedge interest rate risk of roughly the same credit characteristics and in roughly the same yield curve segment. or * in combination with the underlying (typically the cheapest-to-deliver bond) in what amounts to basis trades. to express a view on market direction. but with the convenience of the futures market in terms of narrow bid/ask spreads. they contribute dollar duration to portfolios much along the lines of the cash bond. trading on the basis of market views.

AUD. it should be mentioned that bond future spread or butterfly trades are less straight forward in their interpretation than similar trades with international bank deposit futures. etc. JPY. there are futures 12 .1so be held for shorter time horizon but then the position is subject to risk at the unwind. and in particular whether the cheapest-to-deliver goes on special in the repo market Short-term basis trading is in fact quite complex. as explained above. Finally. DEM.e. In a similar vein. Basis trades can be entered into directly (by playing the bond and futures markets simultaneously as discussed in Section B) or indirectly by replacing an existing long bond position with a long position in bond futures and shortterm money market investments. cross-country spreads may be driven by differences of the duration of their respective cheapest-to-deliver bonds than by the absolute level of long-term rates. CAD. In addition. average of bilateral rates against the dollar) at the CBOT. A short-term basis position financed at an overnight rather than term rate constitutes a bet on basically two things: (i) the level of long-term rates (which determines which bond will be the cheapest-to-deliver since they each have different sensitivity to market rates according to their duration). GBP. CURRENCY FUTURES Contract specifications Types of contracts. Interpreting a bond future calendar spread as a reading on a particular segment of the yield curve is made difficult by each contracts' particular sensitivity to shifts in the cheapest-to-deliver and to changes in the repo rate on the cheapest deliver. For instance.g.). Foreign currency futures contracts are available on all major currencies against the dollar (e. there are futures on a USD index (i. and (ii) the evolution of short-term rates. A basis trade can -. SRF. most of which are traded at the CME and at LIFFE.Spread trading: As a word of caution. Basis trading: Trading the basis from the long side is relatively risk less if the position is held to the futures expiration date... and can be used to take on risk subject to one's views in addition to as an arbitrage play.

They tend to require actual delivery. Conversely.e.. Conversely. the contract should be sold if one expects the yen to appreciate more than what is expected by the market. September and December. 13 . Pricing and arbitrage: International interest rate parity Overview. As with interest rate futures.e. Arbitrage relations are cleaner with forwards than with futures because mark-to-market payments on futures introduce an element of reinvestment risk that cannot be fully hedged. long yen and short dollars) is consistent with an expectation of an appreciation of the yen relative to the dollar. For instance. i. bilateral exchange rates between two non-dollar currencies such as on JPY/DEM. in the case of currencies... tend to have quarterly contracts with delivery in March. one should buy the JPY contract if one expects the yen to appreciate more than what is already expected (or priced in) by the market. meaning that at futures settlement the long receives the currency of denomination of the future and pays dollars). going long the JPY contract (i.on crosses. i. June.e. Futures are a natural instrument to express views on future exchange rate movements. the difference between forward and futures prices is less important than with interest rates. However. Expressing a market view Outright trading. Price quotes are on American terms. More formally. shorting the contract is consistent with an expectation of a yen depreciation relative to the dollar. Currency futures against the dollar. Contract specifications. There is no financing bias against the long as was the case with interest rate futures if exchange rates are assumed to be uncorrelated with the level of interest rates. based on number of dollars per unit of foreign currency. by far the most prevalent. the prices of currency futures are bound by a basic arbitrage relationship with the underlying cash market.

only price changes. Index construction: The weight of a stock in an index is the proportion of the portfolio tracked by the index invested in the stock. Stock indexes differ from one to another with respect to the range of stocks covered. and index computation. Moreover. any cash dividends received on the portfolio are ignoring when percentage changes in most indexes are being calculated. First. relative performance can vary sharply over periods such as a month or a quarter. In other words. This implies that percentage changes in stock indexes do not track total returns on the corresponding portfolio of stocks but. The most common weighting scheme is market value weighting. it is not feasible to construct a broad market value weighted portfolio that is both of manageable size to be delivered and contains whole numbers of shares for all 14 . used for example in both the S&P 500 and NYSE indexes. The stocks in the portfolio can have equal weights or weights that change in some way over time. Indexes differ in composition because of the need to measure the price movements of the equity markets of different countries and different segments of each of these national equity markets. those indexes constructed using geometric means). Though returns on stock indexes of the same country are often highly correlated over time. Stock market indexes are time series designed to track the changes in the value of hypothetical portfolios of stocks.STOCK INDEX FUTURES Contract specifications The underlying instrument. Physical delivery of stocks against a futures contract based on an index presents intractable difficulties. Treatment of dividends: Stock indexes are not usually adjusted for cash dividends. stock weighting. not every index correspond to a well defined portfolio of stocks (for example. Futures contract specifications: All futures contracts on stock indexes are settled in cash.

15 . Based on a portfolio of 500 American stocks. To solve these problems stock index futures contracts are settle in cash and the underlying assets are defined to be an amount of cash equal to a fixed multiple of the value of the index.700 American stocks. It does not correspond directly to any portfolio of stocks because of its use of geometric averaging. *CAC-4s0t ock index (MATIF).companies. * NYSE composite futures (NYSE). Contains the prices of 1. Based on a portfolio of 400 American stocks. Based on a portfolio of 40 of the largest stocks listed on the London Stock Exchange. * Value Line futures (KC). The value of one futures contract is FRF200 times the index. * S&P 400 (CME). following is a list of the main international stock indexes and futures contracts on these indexes: * S&P 500 (CME). The value of one futures contract is $500 times the index. Based on a portfolio of all the stocks listed on the NYSE. The value of one futures contract is $500 tirmes the index. * Major market index (CME). * Nikkei 225 stock average (CME). Contracts traded. Based on a portfolio of 225 of the largest stocks listed on the Tokyo Stock Exchange. Based on a portfolio of 20 blue-chip American stocks listed on the NYSE. The value of one futures contract is $500 times the index. The value of one futures contract is $500 times the index. Based on a portfolio of 40 of the largest stocks listed on the Paris Stock Exchange. The value of one futures contract is $500 times the index. * FT-SE 100 index (LUFFE). The index accounts for 80% of the NYSE. The value of one fuLturesc ontact is $5 times the index. The value of one futures contract is GBP 25 times the index. For illustration purposes.

16 . The sale of stock futures against a stock portfolio creates a hedged position with returns very similar to those of a short-term. fixed-income security. stock index futures prices should be related to the underlying cash market by a cost of carry relationship or. Hedging stock portfolios: The objective of hedging with stock index futures is to reduce or eliminate the sensitivity of an equity portfolio to changes in the value of the underlying index. or eliminating exposure to the fluctuations of overall stock market Stock index futures strategies may be preferable to other means of adjusting and managing equity exposure because of cheaper transaction costs. An interesting example of users of stock futures as hedging vehicles are brokers and dealers in equities. Risk management and hedging Overview. Index futures can provide a means of cheaper access to such a portfolio. Managing index fund portfolios involves considerable oversight in terms of maintaining the correct weights as prices change and reinvesting any dividends that are received. attractive prices available on the futures contract.Pricing and arbitrage Like futures on fixed income instruments and currencies. Otherwise arbitrage trades are possible. in other words. Creating synthetic index fund portfolios: Futures can be used to create portfolios that have cash flows characteristics similar to an index fund portfolio. acquiring. As with interest rate and currency futures stock index futures prices and forward prices may differ because mark-to-market payments on -futures introduce an element of reinvestment risk that cannot be fully hedged. Stock index futures provide a means of adjusting. or the difficulty of moving funds quickly and on a large scale into and out of particular stocks. ease of adjusting positions (liquidity). by the cash-forward relationship.

Spreads: A wide range of speculative strategies are possible by mixing stock index futures contracts of different maturities and or different underlying indexes. and leave the returns and risk component associated with the company-specific features of the stocks in the portfolio. Expressing a market view Outright trading: Futures are a natural instruments to express views on future exchange rate movements. Stock index futures can be used to create portfolios that have cash flows characteristics similar to an index fund portfolio. 17 . All profits and losses on stock index futures are effectively treated as long-term capital gains and losses. the different tax treatments of those returns may make it advantageous for some investors to use equity futures. Since a deposit of less than 10 percent is required to purchase or sell a stock futures contract. The strategy that should be employed is to sell stock futures up to reduce or eliminate the market-related component of that portfolio's risk and returns. Capitalizing on stock selectivity.Capitalizing on different tax treatment of futures and equities. one can take on a considerable amount of market risk via index futures and reap the reward of being correct in a forecast of the stock market direction.

The key to options is to understand that holding an option represents a right rather than an obligation. if the market price of the underlying is above the option's strike price. Conversely. the writer (or seller) of the option receives the premium when the option is issued and must stand ready to accept the corresponding futures position at any time duning the life of the option. for a call. the option has no exercise value and is said to be out of the money. but in reverse.OPTIONS ON FUTURES Definition and Pricing Definition and types of options. The intrinsic value or moneyness of an option is the higher of its value if it were to be exercised immediately and zero (its value if it is not worth exercising). For example. If the market price of the underlying is below the call option's strike price. whichever is greater. the futures position may be established by the option holder on any date up to a pre-determined expiration date at a pre-determined price (the strike price). "Moneyness" of options. the option has exercise value and is said to be in the money. * A put option confers upon its holder the right to establish a short (selling) futures position. to put options 18 . The purchaser of the option pays a market-determined price (or premium) in order to have the right --but not the obligation-.to establish the corresponding futures position by exercising the option at some time in the future. In either case. The same applies. There are two types of options on futures: * A call option confers upon its holder the right to establish a long (buying) futures position.

if exercised. There is no downside risk to buying an option.: *Creating asymmetric payoffs on the upside and downside. yield the following futures positions: bought call if exercised long futures bought put by the party short futures sold call long the short futures sold put option. you let the option expire worthless and pay no more. the options on futures. There are options on all the types (though not necessarily on all the specific contracts) of financial futures. which is an extension of the Black-Shoes model originally derived for pricing equity options. yields long futures Underlying instruments. Among the most liquid option contracts (and the corresponding exchanges where they are traded) are: *Short-term interest rates: Eurodollars (at the CME) *Longer-term interest rates: US Treasury bonds and notes (at the CBOT) *Currencies: Deutschemarks and Yen (at the CME) *Stock-indexes: S&P500 (at the CME) Pricing models: A commonly used pricing model for options on futures is the Black model. you must pay the daily settlement variation when the price goes against you. Hedgers and investors might want to use options on futures rather than futures themselves for the following reaso. The price you pay for having the security offered by an option 19 . With a futures position.Futures positions at option exercise: To summarize. Use of options on futures versus use of futures. If the price goes against you.

Trading volumes. whether futures or options on futures are utilized by traders and corporate treasurers depends on their preferences on the risk/reward structure. or actually express views on the basis of market volatility. 20 . This is due to the fact that futures are leveraged instruments. For a fixed price (the option premium). long a put on Eurodollars) allows the borrower to take advantage of favorable rate moves while limiting the damage done by a rises in rates.S. In this case. if you are willing to accept the risk of an unlimited downside exposure. suppose you are negotiating with a Japanese company for electrical parts. firm to hedge the contingent payable by buying options on yen futures. corporation will lose its profit margin if the yen appreciates relative to the dollar at the time the Japanese firm agrees to the contract. The U. The volume traded on options on futures is much larger than on equivalent options on the cash instruments. Hedging example: floating-rate note issuance. Only options allow them to isolate the volatility component on the basis of which they can hedge or trade *Contingent contracts.is the upfront premium. * Hedging or trading on the basis of market volatility. The Japanese company will decide at the next board meeting. Options on futures can be used instead to insure against adverse interest rate moves. Thus. Futures are not directly affected by changes in market volatility. you might consider selling an option and collect the premium upfront. This makes options on futures easier to hedge dynamically since one does not need to worry about financing of positions in the underlying. which takes place in a month. Some users. might want to hedge market volatility. it may pay for the U. liability or cash flow being hedged is of a contingent nature.S. Conversely.. For example. however. and interest rate cap (i.e. whether to provide parts at the agreed upon prices. Options might be suitable if the asset.

We have investigated some of the features of futures contracts.Liquidity and market depth In derivatives markets. allow economic agents to fine tune the structure of their assets and liabilities to better suit their risk preferences and market expectations. Over the last decades. Some may use them to spread risk. financial institutions and corporations and have been successfully integrated into risk Management and yield enhancement strategies. explained some of the basics regarding how they are priced. unlike in cash markets. They are not per se a financing or investment vehicle but rather a tool for transferring price risks associated with fluctuations in asset values. IMPORTANCE OF FUTURES MARKETS Summary. and derivatives generally. futures have become widely accepted by money managers. most of the action happens in the future. Liquidity typically arises when there are individuals or institutions which continuously wish to buy or sell. Market liquidity: A market is liquid when traders can buy and sell without substantially moving the price against them. users will only feel comfortable using derivatives markets if they are liquid and deep enough to allow investors to rebalance their portfolios in response to new information at low cost. and given a few applications illustrating how these contracts would be used by risk managers and investors. or else by major financial institutions trading in automated systems. Futures as a building-block: Futures have been a key instrument in facilitating the modem trend of separating conventional financial products into their basic 21 . others to take on risk on the basis of particular market views. Liquidity is provided to a large degree by locals (individuals trading on their own capital) trading in the pit. Economic importance of futures. Futures. Because they bind buyer and seller for a pre-specified period of time.

In so doing.components. it should be noted that our goal is to illustrate how futures can be used effectively as an investment alternative and as a risk transfer mechanism. While the following are noteworthy advantages that futures have over forwards. derivatives have contributed decisively to the integration of financial markets. Futures' features. Participants know all transaction prices and there are no negotiated deals and no multiple phone calls to get price quotes. Financial management is quickly becoming an exercise in reducing financials structures into their basic elements and then reassembling them into a preferable structure. * Futures are bought or sold on margin. and as such provide for substantial leverage. *All prices and information are available continuously. 22 . Without resorting to tedious quantification the astounding growth and importance of derivatives can be illustrated by the fact that the value of exchange-treaded Eurodollar derivatives( futures and options)i s now roughly 13 times the value of the underlying market. * Futures are relatively inexpensive to execute (negotiable commission rates). Also. they allow not only the reduction or transformation of risk faced by individual investors but also the sheer understanding and measurement of risk. The surge in financial futures. * Prices are determined by a competitive market system (open outcry or electronic bidding). Financial futures (along with options) are best viewed as building blocks. In the process. the volume of financial futures now dwarfs the volume in traditional agricultural contracts.

23 . The National Stock Exchange has a stock index futures contract based on S&P CNX Nifty Index. Offsets of longs and shorts prevent a bloating of the balance sheet and tying up of credit lines that can become a problem with over-the-counter derivatives. *Audit systems and safeguards enforced by regulatory authorities. The Bombay Stock Exchange has a stock index futures contract based on Sensex. exchanges and futures commission merchants provide a level of integrity for the marketplace. The list of securities in which futures contracts are permitted is specified by Securities Exchange Board of India. On the other hand. Futures on Individual Securities Futures on individual securities were introduced in India in 2001. OTC trading allows more flexibility in establishing contract terms and avoids the need for daily monitoring of mark-to-market positions and margin account. EQUITY FUTURES IN INDIA Equity futures are of two types: stock index futures and futures on individual securities. Both the type of equity futures are available in India.*Positions are easy to reverse if the opinion about market conditions and prospects changes. Stock Index Futures The National Stock Exchange and the Bombay Stock Exchange have introduced stock index futures. *Counterparty credit risk of non-performance is negligible. The National Stock Exchange and the Bombay Stock Exchange have introduced futures on individual securities.

currency or stock index. Many kinds of futures instruments have been developed and the use of futures has received a great deal of attention. Futures are not only a financing or investment vehicle. S&P index etc… Generally futures allow economic agents to fine-tune the structure of their assets and liabilities to suit their risk preferences and market expectations. During the last decades the financial products into their basic components.2 SUBJECT BACK GROUND FOR THE STUDY Futures market plays an important role in the world of finance. but it is a tool for transferring price risks associated with fluctuations in asset values. “A financial futures in a futures contract in a financial instrument like treasury bond.” Eg: Financial futures. 24 .1. The volume of trading in financial futures dwarfs the volume in traditional agricultural contracts. Eurodollar deposits. US Treasury Bills.

1. Financial futures have become the corner stone of financial management. Futures have facilitated the modern trend of separating conventional financial products into their basic components. 5.3 NEED FOR THE STUDY The needs for the study of financial futures are: 1. Futures are relatively in expensive to execute. 6. financial institutions and corporations have been successfully integrated into risk management and yield enhancement strategies. 3. 2. 25 . Financial futures play a prominent role in risk management. Futures have become widely accepted by money managers. Futures have been a key instrument in facilitating the modern trend of separating conventional financial products into their basic components. 4.




Research Design is the basic frame work which provides the guidelines for research. The research design specifies the method for data collection analysis. There are mainly two methods of collecting data, primary and secondary data collection.

Trading on options give lot of volatility to futures market. Futures markets becomes at times unpredictable compare to SENSEX/NIFTY movements. The researcher feels an indepth study in this area, the price movements of futures with respect to SENSEX or nifty is imperative.

Basic futures contract design Definition. A futures contract is a commitment to buy or sell a fixed amount of standardized commodity or financial instrument at a specified time in the future at a specified price established on the day the contract is initiated and according to the rules of the regulated exchange where the transaction occurred. Once the trade clears, the buyer and corresponding seller of the futures contract are not exposed to each other's credit ri3k. Rather, they individually look to the clearinghouse for performance, and vice versa. Futures as a derivative security. A futures contract is a financial derivative of the commodity on which it is based in the sense that it is an arrangement for exchanging money on the basis of the change in the price or yield of some underlying commodity. Timing of cash and commodity flows. Like other derivative securities, futures contract is an agreement to do something in the futures -- no goods or assets are exchanged today. A cash market transaction involves an agreement between two counterparties to buy or sell a commodity for cash today (perhaps for delivery in a couple of days). In a forward 27

market traction, delivery and settlement of the commodity for cash will occur at a single future date with no intervening cash flows. In afitres market transaction, delivery and settlement will also occur at a single future date but there will be daily (or more frequent) cash flows reflecting intervening price movements in the underlying commodity. Value of futures contracts at the time of contracting. Since there is no exchange of neither commodities nor cash payments at the time of contracting of futures contracts, such contracts must have a zero net present value at their inception. Value of futures contract as spot price changes. Once the futures contract is entered into, subsequent movements in the (spot) market price of the commodity create value for either the long futures position (i.e., the buyer) or the short futures position (i.e., the seller). For instance, a rise in the spot price of the commodity will benefit the long as he has bought the commodity under the futures contract at a fixed price and can now expect to sell it in the future at a higher price in the spot market. But since the long will not realize this gain until the settlement of the futures contract, this creates a credit exposure to the extent of the net present value of the futures contract. The futures contract will now be a positive net present value investment for the long and an obligation for the short.

Closing a futures position. A futures position can be closed out before expiration of the contract by entering into an offsetting trade in the same contract for the samne amount.. Under physical delivery, investors that are long the contract must deliver to investors short the contract the underlying commodity of the contract according to the rules on commodity quality and timing established by the exchange.. The determination of the price of the commodity at expiration on which cash settlement amounts are calculated (the final settlement price) is made by the exchange under pre-specified rules. Types of underlving_instruments. Underlying every futures contract is a relatively active cash market for an asset or good. Futures contracts were traditionally based on standard physical commodities such as grains (corn, wheat, soybeans), livestock (live cattle and hogs), energy products (crude oil, heating oil) or metals (aluminum, copper,


among other characteristics. In forward markets cash changes hands only on the forward date In futures markets. For this reason.. Forward contracts will trade on the basis of price and credit characteristics of the counterparty. The buyer and the seller both have 29 . softs (coffee.g. Cash flows and margining. pound (against the dollar or crosses) Equity indices: S&P500. In futures contracts. cocoa). This serves to reduce credit exposure to intraday price movements Tradability. To ensure the liquidity of exchange-traded futures markets. This makes futures contracts particularly well suited for trading in organized exchanges. Forward vs. The margin requirements on futures contracts make them sufficiently immune to credit risk so that credit exposure is not a significant factor in pricing. deutschemark. Over the last two decades. the clearing house members and the clearinghouse itself guarantee fulfillment of futures contracts. contract size. futures based on financial commodities have flourished. Nikkei 225. Contract terms. the time and place of delivery. quantity and quality of the underlying to be delivered. B. futures contracts Futures and forward contracts are similar in the sense that they both establish a price and a transaction to occur in the future. sugar. Bonds and notes: Treasury securities. forward contracts tend to be traded in over-the-counter (OTC) markets. and Treasury bills. In addition.gold).LIBOR-based). there are futures on several commodity indices (like the CRB and GSCI). contracts tend to be offered on standardized terms in terms of maturity.. such as those based on: Money market interest rates: certificates of deposit. Currencies: yen. offshore or euro-deposits (e. NYSE Composite. gains and losses are settled daily in the form of margin payments. margining requirements and trading hours. the method of payment. Credit exposure.

all arbitrage risk can be eliminated.an exposure to the clearing house (and the clearing house to them). driven by economic conditions and trends) or technical (i. (ii) risk management and hedging. arbitrage. 30 ..e. on the other hand. Examples of single transaction hedging might include anticipatory hedging for debt or equity security issuance or currency hedging for foreign trade transactions. Sometimes the prices of futures can be related as well to those of other derivatives which are based on the same (or similar) underlying commodities." to put it in more blunt terms). Examples of aggregate furm hedging include asset-liability gap management and portfolio duration management Financial futures are particularly apt for managing foreign currency and interest rate risk.e. Expressing market views. and futures on three-month LIBOR and on one-month LIBOR By isolating each characteristic of some underlying security with a derivative instrument. Exchangetraded futures. Financial futures are an efficient way of taling bets on the market on the basis of traders' views. Regulation. are regulated by identifiable entities which are either governmental (like the Commodity Futures Trading Commission in the U.S. Since forwards are a bilaterally negotiated agreement. should not) be fully hedged. and (iii) taking trading positions on the basis of market views (or "speculating. whether these are fimdamental (i. Examples of related derivatives are interest rate swaps and interest rate futures. rather than to each other. Financial futures can be used as devices for: (i) arbitrage or yield enhancement. Such trades by definition cannot (indeed.) or set up by the industry itself. FINANCIAL FUTURES: USES AND USER Uses.. there is no formal regulation of forwards nor is there a body to handle customer complaints. Hedging can be performed on a single tansaction (or instrument) basis or on an aggregate (portfolio or firm) basis. based on observed short-term price movements). Risk management.

or the "Merc") Chicago Board of Trade (CBOT) Tokyo International Financial Futures Exchange (TIFFE) Tokyo Stock Exchange (TSE) London Intemational Financial Futures and Options Exchange (LIFFE) Marche a Terme International de France (MATIF) in Paris Singape-e Interational Monetary Exchange (SIMEX) Deutsche Terminborse (DTB) in Frankfurt New York Futures Exchange (NYFE) Mercado Espafhol de Futuros y Opciones Financieras (MEFF) in Barcelona 31 ..although trade construction might be such as to immunize particular kinds (or dimensions) of risk. including commercial banks.g.basic functions. Unlike pure arbitrage. WORLD FUTURES EXCHANGES Exchanges are formal organizations whose purpose is to concentrate order flow in order to facilitate competition and to reduce transaction costs involved in searching for counterparties. Users. including municipal and state organizations and foundations are more likely to use them to hedge their commercial. Futures can be used to express views on general market direction. Individuals and locals a:e more likely to use them for speculation and arbitrage. the timing of expected market movements. or a combination of these. brokerage firms. fund managers and insurance companies will use futures for their thrc:. credit. changes in the spread between market segments (e. Financial institutions. expressing market views is not riskless. investment banks. The users of financial futures are naturally given by their uses. The principal financial futures exchanges in the world are: Chicago Mcrcantile Exchange (CME. Non-financial corporations. commodity quality or cross-country differences). investment or borrowing activities.

internet. magazines etc. 2..7 TOOLS FOR DATA COLLECTION Secondary Data: It is collected from books. journals.4 OBJECTIVES OF THE STUDY • • • To study on the financial futures with reference to NSE Nifty. 32 . Secondary data is mainly used for the study. 2. 2.6 RESEARCH METHODOLOGY This study entitled ‘A study on the role of Financial Futures with reference to NSE Nifty is mainly done in Banking and Pharmaceutical industry. Five companies from Banking and five from Pharma industry are taken for the study. To study the volatility of futures with reference to Banking and Pharmaceutical industries. The results cannot be generalized. To study the amount of risk of Financial Futures of NSE in the month of March with reference to Banking and Pharmaceutical industries.5 SCOPE OF THE STUDY: This study is done mainly under the ten companies of NSE Nifty.2.

2.9 LIMITATIONS OF THE STUDY Time constrains Geographical constraints This is restricted to Banking and Pharmaceutical Industry 33 . Σy n Σ x2 – (Σx)2 X = market return For calculating ‘x’ the NSE share price is taken.8 METHOD OF ANALYSIS The formula used for calculation are: β = n * Σxy – Σx . X= closing price – opening price * 100 Opening price Y = stock return For calculating ‘y’ the NSE future value is taken Y= closing price – opening price *100 Opening price 2.

Ranbaxy. Corp Bank. Dabur. Punajb National Bank. objectives. Chapter 4: This chapter deals with the Analysis and Interpretation of Data Chapter 5: It gives the Summary of Findings. CIPLA. Chapter 3: It deals with the Company Profiles of ICCI Bank. Conclusion and Recommendations. Chapter 2: Research Design deals with the statement of the problem.2. 34 . review of literature. IOB. scope of the study and about the methodology used by the study.10 CHAPTER SCHEME Chapter 1: Introduction deals with the introduction to futures. subject background of the study and need for the study. Syndicate Bank. Glaxo and Sun Pharma.


ICICI Bank's equity shares are listed in India on stock exchanges at Kolkata and Vadodara. Credit Cards. SBI Life (Insurance) etc. Mumbai and the National Stock Exchange of India Limited and its ADRs are listed on the New York Stock Exchange (NYSE).Kamath. and about 2400 ATMs. ICICI Bank offers a wide range of banking products and financial services to corporate and retail customers through a variety of delivery channels and through its specialized subsidiaries and affiliates in the areas of investment banking. Bandra Kurla. ICICI Bank has total assets of about USD 56 Billion (end-Mar 2006). Nachiket Mor. Savings.icicibank. a network of over 619 branches and offices.79 billion www. K. During the year 2005 ICICI bank was involved as a defendant in cases of alleged criminal practices in its debt collection operations and alleged fraudulent tactics to sell its products 36 . ICICI Bank Towers. the Stock Exchange.. USD 5. NYSE: IBN 1955 (as Industrial Credit and Investment Corporation of India) ICICI Bank Ltd.com Key people Products Revenue Website ICICI Bank (formerly Industrial Credit and Investment Corporation of India) is India's largest private sector bank and second largest overall. venture capital and asset management.3.1 ICICI BANK ICICI Bank Type Founded Headquarters Private BSE & NSE:ICICI. life and non-life insurance. Mumbai India N Vaghul.V. Investment vehicles. Chanda Kochhar Loans.

37 . All this changed in 1990s. ICICI Bank is the largest issuer of credit cards in India . credit cards.It was the first bank to offer a wide network of ATM's and had the largest network of ATM's till 2005. ICICI bank now has the largest market value of all banks in India. These funds were deployed in large corporate loans. and is widely seen as a sophisticated bank able to take on many global banks in the Indian market. It has operations in the UK. Hong Kong. car loans etc. other such institutions were IDBI and SIDBI) with the objective to finance large industrial projects. ICICI Bank now has the largest market share among all banks in retail or consumer financing.it could not take retail deposits. The bank is expanding in overseas markets. It is widely believed that the proportion of NPAs has come down to prudent levels (even if it were high earlier). The experiment was so successful that ICICI merged into ICICI Bank ("reverse merger") in 2002. Singapore and Canada.ICICI Bank which undertook normal banking operations . and nor was it required to comply with Indian banking requirements for liquid reserves.ICICI was established by the Government of India in the 1960s as a Financial Institution (FI. At the time of the reverse merger. before SBI caught up with it.in particular to the steel industry. as they are known in India) on its books . The bank is aggressively targeting the NRI (Non Resident Indian) population for expanding its business.taking deposits. It has tie-ups with major banks in the US and China. ICICI founded a separate legal entity . It acquired a small bank in Russia recently. ICICI borrowed funds from many multilateral agencies (such as the World Bank). there were rumours that ICICI had a large proportion of Non Performing Loans ("NPA". Since 2002. ICICI was not a bank . often at concessional rates. there has been a general revival in Indian industry (and metal based industry in particular).

1969. 1895 (British India) New Delhi. The Government of India nationalized the bank. 38 . Insurance etc.32 billion (2005) . Credit Cards.C.Gupta Banking Insurance Capital Markets and allied industries Loans. NSE:PNB) Lahore. S.D. established in 1895 in Lahore by Lala Lajpat Rai. on July 19.3..com Products Revenue Slogan Website Punjab National Bank (PNB). Investment vehicles. Savings. USD 2.2 PUNJAB NATIONAL BANK Punjab National Bank Type Founded Headquarters Key people Industry Public (BSE. India Chairman and M.PNBIndia.the name you can BANK upon www. along with 13 other major commercial banks of India. is the second largest public sector commercial bank in India with about 4500 branches and offices throughout the country.. Mr.

Pai. The bank. The business started with a capital of Rs. 39 . 80.000. was nationalized on 19th July. M. the bank was known as Canara Industrial and Banking Syndicate Limited. USD bil Faithful and Friendly (English) & Viswasaneeya Hitheshi (Sanskrit) syndicatebank. Investment vehicles.3. A. The primary objective of business was to extended financial assistance to local weavers. Credit Cards. The first branch of the bank started its operations in the year 1928 at Brahmavar in Dakshin Kannada District.Insurance. along with 13 other major commercial banks of India. is one of the oldest and major commercial bank of India. 1969. Initially the bank collected as low as 2 annas from the door steps of the depositors daily through its agents. by the Government of India.in/ Key people Industry Products Revenue Slogan Website Syndicate Bank. 1925 (as Canara Industrial and Banking Syndicate Limited) Head Office. Bajaj Allianz Life Insurance (Insurance) etc. India) by Upendra Ananth Pai.3 SYNDICATE BANK Syndicate Bank Type Founded Headquarters Public (BSE & NSE) Udupi. Vaman Kudva and Dr. Karnataka India & Corporate Office Bangalore Chairman C P SWARNKAR Banking. T. Manipal. established in 1925 in Udupi (Karnataka state. At the time of its establishment. By 1937 it had secured its membership as a Clearing House at Mumbai.Capital Markets and allied industries Loans. Savings.

Currently it has over 1900 branches. From 1953-1964. Syndicate Bank sponsored the first regional rural bank in India by name Prathama Grameena Bank. It took over Al Shabei Finance and Exchange Co. Mangalore Stock Exchange and Bangalore Stock Exchange. The bank expanded its operations not only on the domestic front but also overseas. By 1989 it opened its 1500th branch at Hauz Khas. in Muscat (1984).4 CORPORATION BANK CORPORATION BANK 40 . 20 banks merged with the Canara Industrial and Banking Syndicate Limited this included the Maharastra Apex Bank Limited and Southern India Apex Bank Limited. 3. The name of the bank was changed to Syndicate Bank Limited in the year 1963 and the head office of the bank was shifted to Manipal. Delhi. National Stock Exchange.This type of system where in the agents of the bank come doorsteps to collect deposit is still prevailing in India and is referred as Pigmy Deposit Scheme. The stocks of the Syndicate Bank are listed on Bombay Stock Exchange. in Doha (1983) and Musandam Exchange Co.

5 INDIAN OVERSEAS BANK IOB 41 . NSE:CORPBANK) Udipi. is one of the Indian banks in public sector. The bank was founded with an initial capital of Rs. Rs 862. 054.Type Founded Headquarters Public (BSE. Mangaladevi Temple Road Pandeshwar Mangalore 575 001 India Chairman B.3.87% of Share Capital is presently held by the Public and Financial Institutions. and operates from several branches in India. The Bank came out with its Initial Public Offer (IPO) in October 1997 and 37.27 Crore (2006)[1] A Premier Government of India Enterprise www.92 crores as on 31 March 2005. The Bank is a Public Sector Unit with 57. India.com Key people Industry Products Revenue Net income Slogan Website Corporation Bank. The bank has the distinction of the first Indian bank to publish its financial results (199899) conforming to US GAAP. etc. founded in 1906 in Udupi. Credit Cards. Savings.corpbank. CORPORATE OFFICE . Investment vehicles. has currently (31 March 2004) 10. Karnataka state.17% of Share Capital held by the Government of India. and first day’s canvassed resources of less than one USD 1. 1906 Corporation Bank.83 crore (2006) Rs 100. 3. 5000 (USD 100). The Bank’s Net Worth stood at Rs. Sambamurthy Banking Loans.176 full time employees.

23 Crs at that time.6. 3.at Karaikudi and Chennai in India and Rangoon in Burma (presently Myanmar) followed by a branch in Penang.6 RANBAXY LABORATORIES 42 . by Shri.Banking.Ct. IOB had the unique distinction of commencing business on 10th February 1937 (on the inaugural day itself) in three branches simultaneously . a pioneer in many fields . Insurance and Industry with the twin objectives of specializing in foreign exchange business and overseas banking. Deposits stood at Rs. Chidambaram Chettyar.64 Crs and Advances at Rs.M.M.Indian Overseas Bank (IOB) was founded on February 10th 1937.3. At the dawn of Independence IOB had 38 branches in India and 7 branches abroad.

Chairman Brian Tempest.7 CIPLA CIPLA Limited 43 .Ranbaxy Laboratories Limited Type Public Founded 1961 Headquarters Key people Gurgaon.ranbaxy. Ranbaxy went public in 1973. It exports its products to 125 countries with ground operations in 46 and manufacturing facilities in seven countries.178 billion (2005) Employees 1100 in R&D Website www.com Ranbaxy Laboratories Limited is an Indian company incorporated in 1961. Executive Vice Chairman Malvinder Mohan Singh. Haryana. 3. It is ranked among the top 10 generic companies worldwide. Chief Mentor. It is India's largest pharmaceutical company. CEO & MD Industry Pharmaceutical Products Generic drugs Revenue $1. The CEO of the company is Malvinder Mohan Singh. India Tejendra Khanna.

Today (2007). Cipla ignores foreign patents on these drugs where no Indian law is broken in the process.com Cipla founded as The Chemical. By doing so Cipla has reduced the cost of providing antiretroviral to AIDS patients from $12. 1936). The company was founded in 1935 by Khwaja Abdul Hamied.000 (and beyond) to around $300 per year. Chairman Industry Pharmaceuticals Revenue Net income Rs.cipla. Hamied (CMD). as measured by units produced. stavudine and Nevirapine). Industrial & Pharmaceutical Laboratories is a major Indian pharmaceutical company.Type Founded 1935 Headquarters Key people Mumbai. so in money terms Cipla's medicines are probably not in top spot). distributed and sold (multinational brandname drugs are exponentially more expensive. and its Chairman today is Yusuf Hamied (b.8 billion (2005) Rs. India Y. While this sum remains out of reach for many millions of people in 'Third World' countries. Cipla produces an all-in-one pill called Triomune which contains all three substances (Lamivudine. best-known for manufacturing economical anti-AIDS drugs. 24. 4. Cipla is the world's largest manufacturer of antiretroviral drugs to fight HIV/AIDS. The customary treatment of AIDS consists of a cocktail of three drugs. charitable sources often are in a position to make up the difference for destitute patients. the founder's eldest son. K. something difficult elsewhere because the three patents are 44 .1 billion (2005) Employees ??? Website www.

Zidovudine and Nevirapine. This contains Lamivudine. 3. with the name Duovir-N.8 DABUR 45 .held by different companies. One more popular fixed dose combination is there.

BSE) Founded 1884 Headquarters Ghaziabad Key people V. India. 46 . Dabur operates in more than 5 countries and has sales worldwide. West Asia. Dabur Chyawanprash. schools and call centers. The company headquarters are in Ghaziabad.03 crore Website www. It is most famous for Dabur Chyawanprash and Hajmola. Burman in 1884 as a small pharmacy in Calcutta (now Kolkata). West Bengal.Dabur Type Public (NSE. where it is registered. The company.C. Dabur has manufacturing operations in India. near the Indian capital of New Delhi. In two years the growth rate expected by them to change two folds. Their growth rate rose from 10% to 40%. through Dabur Pharma Ltd. 19 billion (approx.b does toxicology tests and markets ayurvedic medicines in a scientific manner. India. Dabur Chyawanprash. The company was founded by Dr. S. Dabur has a turnover of approximately Rs. Food Products Dabur Amla. Hospitals.T all over the country therein opening a new market. Vatika. C. Africa and the United Arab Emirates.com Dabur India Limited is the fourth largest FMCG Company in India with interests in Health care. Africa and Europe. Barman Industry Health Care. Vatika.K. Hajmola & Real Revenue Rs 1375. Burman. Hajmola & Real. with brands like Dabur Amla. They have researched new medicines which will find use in O. US$ 420 million) during the fiscal year 2005-2006. as well as exports to Australia. Uttar Pradesh.dabur. and is now led by his greatgrandson V. Personal care and Food products.

3. a subsidiary of Dabur India is expecting to grow at 25%.Dabur Foods.12 billion. has project sales of Rs 100 crore in next three years. It will therefore increase its range of products to include tomato based products. The company was set up in 1993 and now has sales worth Rs. In 47 .9 SUNPHARMA Sun Pharmaceutical Industries (Sun Pharma) is a major producer of specialty pharmaceuticals and active pharmaceutical ingredients. Dabur foods mainly supplied beverages to institutional customers..

respiratory..2 billion (2006) £7.8 billion (2006) Employees Over 100. London. live longer" Website www. Chairman Jean-Pierre Garnier.gsk.728 (2005) Slogan "Do more.10 GLAXOSMITHKLINE GlaxoSmithKline Type Public (LSE: GSK NYSE: GSK) Founded 2000. The same year the company also acquired Dadha Pharma in Tamil Nadu.gsk. biologicals.S. neurology. Business Sun Pharma brands are prescribed in chronic therapy areas like cardiology. GSK is a research-based company with a wide portfolio of pharmaceutical products covering anti-infectives. Sun Pharma acquired the U. central nervous system (CNS). feel better. by merger of Glaxo Wellcome and Smith Kline Beecham Headquarters Brentford. and healthcare company. oncology and vaccines products. Chief Financial Officer Industry Pharmaceutical Products www.com GlaxoSmithKline plc (LSE: GSK NYSE: GSK) is a British based pharmaceutical. Chief Executive Julian Heslop. and respiratory. It also 48 . gastroenterology. psychiatry. United Kingdom Key people Sir Chris Gent. gastro-intestinal/metabolic. diabetology. 3.com/products Revenue Net income £23.1996. Detroit-based Caraco Pharm Labs.

has a Consumer Healthcare operation comprising leading oral healthcare products. nutritional drinks and over the counter (OTC) medicines 49 .


167 -2.612 1.-9.326 -0.453 4.76 .139 -2.5432 0.2323 0.271 16.8537 Σ x2 = 163.13 1.389 Σy = 1.1586 6.2222 14.0403 37.875 0.314 0.090 2.329 -2.781 -1.057 17.1603 6.343 -6.175 5.269 0.427 0.979 0.359 Σxy = 40.56 Source: Secondary Data β = n * Σxy – Σx .402 -1.56 .3806 26.-7.201 -0.329 0.482 -0.82 -0.13* 1.98 0.337 21* 163.225 -0.366 3.7662 5.924 Σx = -7.595 -1.532 51 .497 0.145 3.892 -0.658 -1.101 3.297 -24.13) 2 = 851.337 3.098 1.7693 1.916 -0.152 -1.330 -0.3990 53.192 -1.482 -2.143 0.737 0.3540 1. Σy n Σ x2 – (Σx)2 = 21*40.728 0.678 0.791 -1.4329 1.3124 0.546 1.591 -0.1823 0.835 0.291 2.8225 2.098 1.01-03-2007 02-03-2007 05-03-2007 06-03-2007 07-03-2007 08-03-2007 09-03-2007 12-03-2007 13-03-2007 14-03-2007 15-03-2007 16-03-2007 19-03-2007 20-03-2007 21-03-2007 22-03-2007 23-03-2007 26-03-2007 28-03-2007 29-03-2007 30-03-2007 1.7312 0.532 21.724 -0.7693 – (-7.546 0.6972 0.138 -7.9063 0.963 4.831 4.409 -0.2410 0.347 -0.952 -0.630 1.5299 0.8032 0.780 -1.850 1.

15 – 50. Therefore investment in ICICI futures is less risky. ICICI futures are less volatile.836 = 861.292 3388.254 Table 4.3439.1 shows the beta value of ICICI futures and Nifty futures. 52 . Since the beta value is less than one.314 = 0.

923 3.919 12.490 11.378 -3.259 Σy = 18.216 5.931 0.087 -1.391 1.8208 42.25 15.601 Σx = -7.508 7.849 0.615 -0.02 Source: Secondary Data β = n * Σxy – Σx .014 23.874 1.588 -4.682 Y 3.505 2.249 3.249 13.214 -0.333 X2 .985 6.350 9.250 27.181 3.048 -0.155 Σxy = 592.134 3.034 -0.088 13.028 1.204 12.Table 4.394 22.50 -3.392 0.485 10.943 -0.007 3.365 20.475 8.223 -5.095 13.381 -0.593 0.770 -3.295 5.614 1.232 12.369 -3.937 3.078 -0.901 1.604 2.483 19. Σy n Σ x2 – (Σx)2 53 .008 -3.108 11.388 6.865 -0.538 4.377 44.474 0.702 38.760 -2.896 -2.613 2.211 3.2 ANALYSIS OF CORPORATION BANK Date 01-03-2007 02-03-2007 05-03-2007 06-03-2007 07-03-2007 08-03-2007 09-03-2007 12-03-2007 13-03-2007 14-03-2007 15-03-2007 16-03-2007 19-03-2007 20-03-2007 21-03-2007 22-03-2007 23-03-2007 26-03-2007 28-03-2007 29-03-2007 30-03-2007 X -0.355 8.202 1.354 -3.751 5.004 -1.931 -3.905 1.452 11.363 5.361 Σ x2 = 229.18 XY -3.906 -6.673 3.515 -2.132 15.333 -3.907 0.864 1.

268 -0.607 0.526 -1.275 5.500 0. 2.682 * 18.697 1. Corporation Bank futures are highly volatile.952 -2.299 -2.808 -1.271 0.e.644 Table 4.559 2.834 4812.538 -0.705 X2 .-7.313 2.552 2.671 6.084 0.= 21*592.170 2.492 -4.490 -4.488 10.113 -1.333 21* 229.658 -0.3 ANALYSIS OF INDIAN OVERSEAS BANK (IOB) Date 01-03-2007 02-03-2007 05-03-2007 06-03-2007 07-03-2007 08-03-2007 09-03-2007 12-03-2007 13-03-2007 14-03-2007 15-03-2007 16-03-2007 19-03-2007 X 0.338 -5.836 0.458 -0.212 -7.396 25. There fore investment in Corporation Bank is high risky.013 = 12573.329 5.790 27. Table4.310 Y 2.268 1.644.303 1.747 4.767 = 2.009 1.254 4753.78 – 59.02 .361 1.574 3. Since the beta value is more than one i.-140.682) 2 = 12432.404 3.076 -3.395 -0.18 – (-7.831 -0.164 53.42 .096 1.380 1.574 2.349 6.175 0.307 -0.218 54 .880 0.501 4.2 shows the beta value of ICICI futures and Nifty futures.096 XY -0.

79) 2 = 1895.408 -3.117 0.-8.634 Table 4.607 -1.299 2.017 21* 138.-105.663 7.00 0.463 2.63 – 77.79* -12.418 -2.652 13. IOB futures are less volatile.63 2898.129 Σxy = 90.083 9.368 1.3 shows the beta value of IOB futures and Nifty futures.677 1. There fore investment in IOB futures is less risky.26 = 1789.179 -0.802 Σ x2 = 138.315 0.389 -1.000 -0.140 -1.326 3.062 9.208 .248 .248 Source: Secondary Data β = n * Σxy – Σx .077 Σy = -12.214 -4.578 2821.337 3.126 -3.20-03-2007 21-03-2007 22-03-2007 23-03-2007 26-03-2007 28-03-2007 29-03-2007 30-03-2007 3. Since the beta value is less than one.812 2.37 = 0. Σy n Σ x2 – (Σx)2 = 21* 90.093 3.03 – (--8.204 -3.902 4.959 -1.674 Σx = -8. 55 .017 11.919 2.455 -0.79 2.

072 1.190 4.920 6.490 -4.074 5.832 -3.204 -3.078 -2.836 0.792 15.443 -0.377 7.538 -0.468 -0.791 -1.781 -4.625 1.870 7.705 2.939 -0.145 0.077 Σy = -11.909 3.113 -1.788 Σx = -18.170 2.088 1.344 -2.020 12.831 -0.759 .018 1.076 -3.051 14.091 -2.620 Σ x2 = 165.126 -3.605 24.Table 4.661 Y 2.619 5.122 8.982 18.005 1.414 X2 1.711 19.114 0.036 3.717 5.232 4.321 2.25 5.431 -1.626 -0.733 18.330 9.060 Σxy = 133.168 6.717 5.463 2.214 -4.395 -0.952 -2.474 0.4 ANALYSIS OF SYNDICATE BANK Date 01-03-2007 02-03-2007 05-03-2007 06-03-2007 07-03-2007 08-03-2007 09-03-2007 12-03-2007 13-03-2007 14-03-2007 15-03-2007 16-03-2007 19-03-2007 20-03-2007 21-03-2007 22-03-2007 23-03-2007 26-03-2007 28-03-2007 29-03-2007 30-03-2007 X 1.928 -0.989 XY 3.315 0.088 Source: Secondary Data 56 .787 2.492 -4.312 0.968 0.902 4.333 0.651 42.957 28.015 -0.965 -6.953 0.814 0.658 -0.552 2.485 -0.257 2.500 -2.267 -4.006 4.418 -2.060 0.

Σy n Σ x2 – (Σx)2 = 21* 133.769 – 348.680 72.661) 2 = 2794.114 3.848 .822 Table 4. Table 4.697 28.996 3485.492 1. Since the beta value is less than one in the month of March.563 -7.23 = 2581.801 -1.809 -3.852 3137.4 shows the beta value of Syndicate Bank futures and Nifty futures.414 21* 165.539 = 0.β = n * Σxy – Σx .130 3.5 ANALYSIS OF PUNJAB NATIONAL BANK Date 01-03-2007 02-03-2007 05-03-2007 06-03-2007 07-03-2007 X 3.661* -11.088 .362 6.-212.105 3.694 50.356 XY 20. the Syndicate bank futures are less volatile and the investment in syndicate bank futures is less risky.-18.738 -1.119 8.020 3.719 1.984 0.989 – (-18.823 X2 12.832 Y 5.339 57 .

111 0.271 1.863 -0.948 Σy = 8.195 0.069 -1.606 -1.394 -3.955) 2 = 2832.732 -2.159 Σxy = 134.778 1.580 1.198 -1.929 2.811 -1.316 2.157 1.067 4.879 – 151.096 14.391 5268.579 3.053 3.093 0.239 -.333 – 287.899 Source: Secondary Data β = n * Σxy – Σx .961 2.768 -1.336 3.435 2.489 11.696 5.001 -1.435 2.534 -1.721 -1.953 -1.052 -2.566 27.198 0.238 6.857 2.825 2.453 -0.873 2.980 3.168 Σx = 16.085 0.905 3.861 = 0.955 1.955* 8.920 -0.929 21* 250.173 29. Σy n Σ x2 – (Σx)2 = 21* 134.028 Σ x2 = 250.814 1.391 0.472 = 2681.488 4980.669 12.143 0.041 0.322 1.899 – 16.206 0.656 24.103 1.873 – (16.538 58 .240 -3.955 10.859 5.447 3.08-03-2007 09-03-2007 12-03-2007 13-03-2007 14-03-2007 15-03-2007 16-03-2007 19-03-2007 20-03-2007 21-03-2007 22-03-2007 23-03-2007 26-03-2007 28-03-2007 29-03-2007 30-03-2007 1.934 0.448 8.158 4.265 3.

Table 4. Since the beta value is less than one.942 -1.957 1. Table.295 -0.696 ΣY=-0.156 0.830 1.673 0.803 2.098 0.151 0.503 3.657 1.381 5.397 -0.175 0.047 -0.387 2.548 Y 1.259 0.689 20.524 0.667 0.394 2.294 0. the futures of PNB is less Date 01-03-2007 02-03-2007 05-03-2007 06-03-2007 07-03-2007 08-03-2007 09-03-2007 12-03-2007 13-03-2007 14-03-2007 15-03-2007 16-03-2007 19-03-2007 20-03-2007 21-03-2007 22-03-2007 23-03-2007 26-03-2007 28-03-2007 29-03-2007 30-03-2007 X -0.189 3.343 ΣX=-8.059 0.299 -1.866 8.580 5.830 -4.5 shows the beta value of Punjab National Bank futures and Nifty futures.062 volatile and investing in Punjab National Bank futures is less risky.645 26.176 -1.363 0.997 -0.485 -0.260 -0.514 0.710 -5.926 X2 0.343 -1.125 0.380 -1.887 1.472 -2.475 -5.469 0.213 15.316 -1.278 -2.132 0.942 6.83 XY -0.666 -7.089 1.664 1.6 RANBAXY Source: Secondary Data 59 .446 -0.189 15.786 3.227 0.236 2.024 27.503 0.328 -0.031 5.096 -3.798 5.934 ΣXY=132.443 51.655 0.858 2.329 0.178 -0.266 3. 4.660 -0.353 1.636 29.473 36.976 27.226 -1.803 ΣX2=174.336 0.201 0.063 -1.793 5.260 -1.704 4.

β = n * Σxy – Σx .83 – (-8. Σy n Σ x2 – (Σx)2 = 21*132.926 21* 174. Since the beta value is less than one.548 * -0.062 .068 = 2765.43 – 73.6 shows the beta value of Ranbaxy futures.302 – 7. Table 4. it is less volatile and investing in Ranbaxy futures is less risky.7 60 .548) 2 = 2773.915 3671.768 Table 4.362 = 0.-8.387 3598.

423 3.496 0.357 -0.051 0.847 Source: Secondary Data β = n * Σxy – Σx .701 -3.088 3.020 0.007 15.071 0.974 2.024 0.667 -1.189 3.739 -3.981 ΣX= 6.193 0.328 -0.329 0.SUNPHARMA Date 01-03-2007 02-03-2007 05-03-2007 06-03-2007 07-03-2007 08-03-2007 09-03-2007 12-03-2007 13-03-2007 14-03-2007 15-03-2007 16-03-2007 19-03-2007 20-03-2007 21-03-2007 22-03-2007 23-03-2007 26-03-2007 28-03-2007 29-03-2007 30-03-2007 X 3.687 3.475 -5.155 -0.94 61 .427 -0.737 0.773 0.630 -0.770 ΣXY= -19.848 ΣX2= 77.353 -3.655 0.696 ΣY= -0.697 -0.710 -5.447 -0.031 5.228 XY 4.093 0.005 -0.719 -0.957 1.492 7.738 * -0.047 -0.381 5.94 X2 14.096 -3.219 11.738 Y 1.626 -0.962 -0.847 – 6.473 1.261 -1.368 -4.171 -0.660 -0.831 2.486 0.672 0.230 0.481 -0.744 0.392 0.358 2.149 8.131 2.068 0.176 -1.294 0.204 2.543 0.743 -11.948 7.114 1.023 0.062 -1.316 -1. Σy n Σ x2 – (Σx)2 = 21*-19.390 -2.152 0.362 -1.020 -7.689 -0.445 2.676 4.008 0.261 -0.165 -0.466 -2.553 0.252 -0.

404 -2.336 1621.131 2.751 0.703 2.572 10.542 XY 1. Since the beta value of this future is negative.173 0.666 4.663 12.489 0.256 0.121 -1.803 4.554 10.946 -2.816 -2.472 12.957 4.756 0.382 -3.21* 77.626 25.152 -2.049 1.631 8.387 -3.573 -3.572 1.101 1.146 11.453 -1.173 1.8 DABUR Date 01-03-2007 02-03-2007 05-03-2007 06-03-2007 07-03-2007 08-03-2007 09-03-2007 12-03-2007 13-03-2007 14-03-2007 15-03-2007 16-03-2007 19-03-2007 20-03-2007 21-03-2007 X -3.151 5.40 = -410.161 -0.678 5.038 13.218 -3.011 -1. this shows that when the market return of the futures is increasing its stock value is coming down.297 -0.7 shows the beta value of Sun Pharma’s futures.525 -0.022 2.054 Y -0.090 1. Table 4.223 -1.451 1576.228 – (6.474 11.956 2.788 – 45.738) 2 = -416.446 0.257 -1.500 X2 9.635 62 .428 -0.433 -2.388 = -0.152 -0.025 3.911 -2.089 0.356 -5.988 -3.26 Table 4.870 0.592 -1.787 .-6.718 -4.

086 3.047 – 219.027 9.942 -4.193 ΣY= -9.596 Source: Secondary Data β = n * Σxy – Σx .210 1.771 16.845 6.362 1.023 4.907 – (-14.825 * -9.068 1.84 9.-14.84 21* 155.314 2. 63 .001 2.638 3054.001 2 ΣX = 155.311 -1.687 -2.780 = 1420.184 19.596 .267 = 0.516 – 145.725 2.359 ΣX= -14.559 ΣXY= 74.825 3.467 -1. Since the beta value is less than one.412 2.878 3274. Σy n Σ x2 – (Σx)2 = 21*74.907 10.825) 2 = 1566. it is less volatile and the investment in Dabur futures is less risky.212 3.510 -1.465 Table 4.349 -4.22-03-2007 23-03-2007 26-03-2007 28-03-2007 29-03-2007 30-03-2007 3.8 shows the beta value of Dabur futures and Nifty futures.

259 2.324 -0.760 0.373 1.259 2.845 10.507 6.538 0.961 -3.207 2.112 8.839 -1.390 2.228 -2.489 -1.237 -0.449 25.296 2.400 1.961 -1.134 2.692 ΣX= -7.969 0.022 8.872 2.Table 4.907 -0.271 -2.322 2.901 0.819 0.189 9.086 -2.614 0.687 1.043 -1.764 1.189 Source: Secondary Data 64 .609 5.392 3.624 0.334 2.933 9.9 CIPLA Date 01-03-2007 02-03-2007 05-03-2007 06-03-2007 07-03-2007 08-03-2007 09-03-2007 12-03-2007 13-03-2007 14-03-2007 15-03-2007 16-03-2007 19-03-2007 20-03-2007 21-03-2007 22-03-2007 23-03-2007 26-03-2007 28-03-2007 29-03-2007 30-03-2007 X -2.766 ΣXY= 55.066 -1.154 0.586 -1.422 2.108 ΣY= 1.147 18.314 X2 6.508 0.401 0.854 0.731 0.046 0.384 4.312 0.867 8.421 7.970 -2.446 -0.345 -5.818 1.349 0.478 2 ΣX = 126.201 -0.557 -0.416 0.023 6.820 0.649 1.454 3.421 2.584 -2.202 9.820 5.823 -0.084 XY 5.150 2.430 2.653 -2.935 -0.435 -3.885 0.096 3.046 -2.254 1.84 Y -2.

Since the beta value is less than one. it is less volatile and investing in CIPLA futures is less risky.015 -1.2 shows the beta value of CIPLA futures and Nifty futures.230 X2 .814 1. Σy n Σ x2 – (Σx)2 = 21*55. Table 4.189 .013 -1.691 -0.445 XY -0.930 Y 1.β = n * Σxy – Σx .030 0.764 65 .304 = 0.0001 2.084 – (-7.120 -2.84) 2 = 1158.10 GLAXO Date 01-03-2007 02-03-2007 05-03-2007 06-03-2007 07-03-2007 X -0.176 0.302 2647.418 0.539 -8.232 15.555 0.482 3.756 0.764 – 61.-7.271 2586.452 Table 4.-10.84 * 1.314 21* 126.298 1.969 .088 -4.46 = 1169.

235 -3.392 -3.202 2.126 54.08-03-2007 09-03-2007 12-03-2007 13-03-2007 14-03-2007 15-03-2007 16-03-2007 19-03-2007 20-03-2007 21-03-2007 22-03-2007 23-03-2007 26-03-2007 28-03-2007 29-03-2007 30-03-2007 0.806 0.10.867 -2.192 1.134 -3.482 -5.062 1.800 -5.066 4.134 1.856 * -10.421 1.092 0.138 -1.002 – (-10.214 1.437 1.142 -4.132 2.552 5.851 -1.649 0.002 1.0006 0.126 -1.824 -4.0006 2. Σy n Σ x2 – (Σx)2 = 21*-9.1392 -3.189 66 .891 0.853 = -94.432 5.806 1.1245 1995.826 .056 -0.903 0.042 – 117.262 -3.052 0.347 0.386 0.237 3.052 21* 95.7015 1877.706 .856) 2 = 203.856 2.606 -2.621 0.045 -0.724 1.507 -1.255 ΣXY= -9.564 4.968 2.055 2.925 1.-109.557 1.025 0.637 2 ΣX = 95.424 3.651 2.025 1.944 -0.624 ΣX= 10.236 ΣY= -10.589 0.458 7.403 1.353 -2.948 -2.571 1.807 -1.280 3.706 Source: Secondary Data β = n * Σxy – Σx .

= -.2 shows the beta value of Glaxo futures and Nifty futures. CHAPTER 5 SUMMARY OF FINDINGS. stock value is coming down.05044 Table 4. CONCLUSIONS & RECCOMMENDATIONS 67 . Since the beta value is negative it shows that when market return increases.

68 . 4. The financial future plays an important role in NSE Nifty. 3. its stock value will come down. Dabur and CIPLA futures are less risky. 2. In the month of March 2007. Syndicate Bank. There is relationship with share price movements of the valued of NSE futures.1 FINDINGS: The major findings of the study are: 1. PNB. investing in ICICI futures. IOB. The futures value of Glaxo & Sun Pharma is negative. Ranbaxy. It shows that when the market value is increasing.5. The study shows that investing in Corporation Bank futures is high risky.

Syndicate bank. traded on a futures exchange. Corporation bank. which will take place between them at some fixed future date. Indian 69 . or that lock in the price today of an exchange. A futures contract is a standardized contract. The study entitled ‘THE ROLE OF FINANCIAL FUTURES WITH REFERENCE TO NSE NIFTY’ was done with reference to Banking and Pharmaceutical industry. They are agreements between two counter parties that fix the terms of an exchange. From the banking industry futures of Icici bank. at a specified price.5. Futures or future contract at transferable specific delivery forward contracts. to buy or sell a certain underlying instrument at a certain date in the future.2 CONCLUSION A financial future is a futures contract on a short term interest rate. In finance.

Dabur and CIPLA futures are less the investors can invest in these futures. 70 . Financial futures can be used to dwarfs the volume in traditional agricultural contracts.Overseas Bank and Punjab National bank are taken. Since the volatility of ICICI futures IOB. Futures will helps to allow economic agents to fine tune the structures of their assets and liabilities to better suit their risk preferences and market expectations. Dabur are the companies taken from the pharmaceutical industry. Syndicate Bank. Ranbaxy. Ranbaxy. 3. 2. the investors should be very cautious in investing into those futures. PNB. In March 2007. 5. the investment in Corporation Bank futures is highly risky. 4. Cipla.3 RECOMMENDATIONS 1. Glaxo. Sun Pharma.


2007. 72 .March 04. 10th edition. ‘Investment Analysis and Portfolio Management’. 2007.XXII.III. • Bhalla V K. 6th edition. ‘Investment Management and Security analysis’. Vol. • Money and Finance. No. 05 Feb 19.Books: • Chandra Prasanna. Tata McGraw Hill Publishing company. Journals: • DALAL STREET. Vol. Sultan Chand Publications. Investment Journal. November 9.

com 73 .Website: www.Money control .NSE India.com www.

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