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.


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

5 . 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. the asset has to be storable. and wheat and orange juice have been in existence for nearly three centuries. but are often defined on an interest rate index such as 3-month sterling or US dollar LIBOR. Hence perishable commodities have to be analyzed differently.or stock index. Contracts vary.FUTURES CONTRACTS: THE GLOBAL SCENE Broadly there are two types of futures: commodity futures and financial futures. while financial futures is a futures contract in a financial instrument like Treasury bond. currency . storable as well as perishable. COMMODITY FUTURES (PERISHABLE COMMODITIES) For pricing futures contracts on the basis of arbitrage. Futures price= spot price+ present value of storage costsPresent value of convenience yield. oil. rice. A commodity futures is a futures contract in a commodity like cocoa or aluminum. 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. 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. like gold. COMMODITY FUTURES (STORABLE COMMODITIES) Futures contracts on various commodities. aluminum.

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

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

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. INTERMEDIATE. U. years remaining to maturity (or to first call if the bond is callable). maturities or underlying asset constitute a straight-forward extension. Of course. all with different maturities and coupons. few contracts actually go into delivery. 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. there may be as many as several dozen securities in the deliverable basket. Also unlike the T-bill futures contract. bond futures positions can also be unwound prior to delivery by offsetting futures transactions. All examples drawn below are based on the threemonth Eurodollar contract. Because this is more convenient for most futures users than physical delivery. Treasury bond futures contracts allow delivery of any U.S. T-bond that has at least I. bond futures are settled at expiration with physical delivery. bond futures contracts generally allow for a range of bonds to be delivered against them.S. For example.Pricing and arbitrage: Implied forward rates In order to understand how futures prices are established. applications with contracts based on different currencies. we need to understand how prices of futures contracts are related to the spot or cash market prices of the underlying asset. We will see that the market forces of arbitrage are used to price virtually all financial futures contracts. Plus any accrued interest on the bond: 8 .AND LONG-TERM INTEREST RATE FUTURES Contract specifications Deliverable securities: Unlike international bank futures contract. Futures invoice price: When a bond is delivered into the bond futures contract.

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

The basis point value factor is the ratio of the change in the 10 . the gross basis must be equal to zero. Otherwise there would be instantaneous risk less profit opportunities.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. Suppose.(futures price conversion factor) since dirty (or full) price = clean price + accrued interest.this conversion is performed simply by multiplying the decimal basis by 32. we define the gross or raw basis as: Gross basis = dirty cash price . Risk management and hedging Basic risk management functions: Bond futures are often used as a vehicle for hedging price risk or duration. (ii) sell (buy) a bond futures contract. 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. that the gross basis was negative (positive). Accordingly.futures invoice price = clean cash price . 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 . and (iii) immediately deliver (receive delivery of) the cash bond against the short (long) futures position. Then one could: (i) buy (sell) the cheapest to. Basis arbitrate at futures expiration: At futures expiration.deliver bond in the cash market. An excessive exposure to intermediate.and long-term interest rates can be offset by buying or selling bond futures contracts.

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

Basis trading: Trading the basis from the long side is relatively risk less if the position is held to the futures expiration date. average of bilateral rates against the dollar) at the CBOT.Spread trading: As a word of caution.e. most of which are traded at the CME and at LIFFE..1so be held for shorter time horizon but then the position is subject to risk at the unwind. 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. there are futures on a USD index (i. and can be used to take on risk subject to one's views in addition to as an arbitrage play. AUD. 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). Foreign currency futures contracts are available on all major currencies against the dollar (e.). DEM.g. SRF. 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. GBP. and in particular whether the cheapest-to-deliver goes on special in the repo market Short-term basis trading is in fact quite complex. Finally.. CAD. 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. In addition. and (ii) the evolution of short-term rates. JPY. A basis trade can -. 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. etc. For instance. CURRENCY FUTURES Contract specifications Types of contracts. as explained above. there are futures 12 . In a similar vein.

Conversely. the prices of currency futures are bound by a basic arbitrage relationship with the underlying cash market.e. going long the JPY contract (i. Futures are a natural instrument to express views on future exchange rate movements. the contract should be sold if one expects the yen to appreciate more than what is expected by the market. They tend to require actual delivery. Price quotes are on American terms. June. Pricing and arbitrage: International interest rate parity Overview. As with interest rate futures..on crosses. Expressing a market view Outright trading. 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. i.. by far the most prevalent. 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. in the case of currencies.e. September and December. tend to have quarterly contracts with delivery in March. Currency futures against the dollar. the difference between forward and futures prices is less important than with interest rates. 13 . i. More formally. For instance. However. Contract specifications.. based on number of dollars per unit of foreign currency. shorting the contract is consistent with an expectation of a yen depreciation relative to the dollar. Conversely. bilateral exchange rates between two non-dollar currencies such as on JPY/DEM.e. long yen and short dollars) is consistent with an expectation of an appreciation of the yen relative to the dollar. 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).

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

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

Risk management and hedging Overview. 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. The sale of stock futures against a stock portfolio creates a hedged position with returns very similar to those of a short-term. attractive prices available on the futures contract. by the cash-forward relationship. Stock index futures provide a means of adjusting. Creating synthetic index fund portfolios: Futures can be used to create portfolios that have cash flows characteristics similar to an index fund portfolio. 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. 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. 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. acquiring. An interesting example of users of stock futures as hedging vehicles are brokers and dealers in equities. stock index futures prices should be related to the underlying cash market by a cost of carry relationship or.Pricing and arbitrage Like futures on fixed income instruments and currencies. Otherwise arbitrage trades are possible. 16 . fixed-income security. in other words. or the difficulty of moving funds quickly and on a large scale into and out of particular stocks. ease of adjusting positions (liquidity).

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

For example. 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. The purchaser of the option pays a market-determined price (or premium) in order to have the right --but not the obligation-.OPTIONS ON FUTURES Definition and Pricing Definition and types of options. to put options 18 . There are two types of options on futures: * A call option confers upon its holder the right to establish a long (buying) futures position.to establish the corresponding futures position by exercising the option at some time in the future. If the market price of the underlying is below the call option's strike price. The same applies. * A put option confers upon its holder the right to establish a short (selling) futures position. In either case. if the market price of the underlying is above the option's strike price. Conversely. The key to options is to understand that holding an option represents a right rather than an obligation. the option has no exercise value and is said to be out of the money. for a call. "Moneyness" of options. 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). 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). but in reverse. the option has exercise value and is said to be in the money.

the options on futures. There is no downside risk to buying an option. If the price goes against you. 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. Use of options on futures versus use of futures. if exercised. yields long futures Underlying instruments. With a futures position. There are options on all the types (though not necessarily on all the specific contracts) of financial futures.: *Creating asymmetric payoffs on the upside and downside. which is an extension of the Black-Shoes model originally derived for pricing equity options. you let the option expire worthless and pay no more. you must pay the daily settlement variation when the price goes against you. The price you pay for having the security offered by an option 19 . Hedgers and investors might want to use options on futures rather than futures themselves for the following reaso. 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.Futures positions at option exercise: To summarize.

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

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

Financial management is quickly becoming an exercise in reducing financials structures into their basic elements and then reassembling them into a preferable structure. The surge in financial futures. they allow not only the reduction or transformation of risk faced by individual investors but also the sheer understanding and measurement of risk. 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. derivatives have contributed decisively to the integration of financial markets. Also. Participants know all transaction prices and there are no negotiated deals and no multiple phone calls to get price quotes. Futures' features. In the process.components. * Futures are relatively inexpensive to execute (negotiable commission rates). 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 bought or sold on margin. the volume of financial futures now dwarfs the volume in traditional agricultural contracts. *All prices and information are available continuously. In so doing. 22 . Financial futures (along with options) are best viewed as building blocks. * Prices are determined by a competitive market system (open outcry or electronic bidding). and as such provide for substantial leverage. While the following are noteworthy advantages that futures have over forwards.

EQUITY FUTURES IN INDIA Equity futures are of two types: stock index futures and futures on individual securities.*Positions are easy to reverse if the opinion about market conditions and prospects changes. *Counterparty credit risk of non-performance is negligible. OTC trading allows more flexibility in establishing contract terms and avoids the need for daily monitoring of mark-to-market positions and margin account. *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. Stock Index Futures The National Stock Exchange and the Bombay Stock Exchange have introduced stock index futures. 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. The National Stock Exchange and the Bombay Stock Exchange have introduced futures on individual securities. The list of securities in which futures contracts are permitted is specified by Securities Exchange Board of India. 23 . Futures on Individual Securities Futures on individual securities were introduced in India in 2001. On the other hand. Both the type of equity futures are available in India. The National Stock Exchange has a stock index futures contract based on S&P CNX Nifty Index.

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

3 NEED FOR THE STUDY The needs for the study of financial futures are: 1.1. 6. 4. 3. Financial futures have become the corner stone of financial management. 25 . 5. financial institutions and corporations have been successfully integrated into risk management and yield enhancement strategies. Futures have become widely accepted by money managers. Financial futures play a prominent role in risk management. Futures have been a key instrument in facilitating the modern trend of separating conventional financial products into their basic components. Futures have facilitated the modern trend of separating conventional financial products into their basic components. 2. Futures are relatively in expensive to execute.




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,


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

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

or a combination of these. Unlike pure arbitrage.g. The principal financial futures exchanges in the world are: Chicago Mcrcantile Exchange (CME. 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 . Individuals and locals a:e more likely to use them for speculation and arbitrage.although trade construction might be such as to immunize particular kinds (or dimensions) of risk. credit. Futures can be used to express views on general market direction. expressing market views is not riskless. 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. brokerage firms. fund managers and insurance companies will use futures for their thrc:. commodity quality or cross-country differences).. investment or borrowing activities. investment banks. Non-financial corporations. Users. The users of financial futures are naturally given by their uses. Financial institutions. including municipal and state organizations and foundations are more likely to use them to hedge their commercial. including commercial banks. the timing of expected market movements. changes in the spread between market segments (e.basic functions.

Secondary data is mainly used for the study. Five companies from Banking and five from Pharma industry are taken for the study.5 SCOPE OF THE STUDY: This study is done mainly under the ten companies of NSE Nifty. magazines etc. 2.2.. To study the volatility of futures with reference to Banking and Pharmaceutical industries.7 TOOLS FOR DATA COLLECTION Secondary Data: It is collected from books.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. 2.4 OBJECTIVES OF THE STUDY • • • To study on the financial futures with reference to NSE Nifty. The results cannot be generalized. 32 . To study the amount of risk of Financial Futures of NSE in the month of March with reference to Banking and Pharmaceutical industries. 2. journals. internet.

2.9 LIMITATIONS OF THE STUDY Time constrains Geographical constraints This is restricted to Banking and Pharmaceutical Industry 33 .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. Σy n Σ x2 – (Σx)2 X = market return For calculating ‘x’ the NSE share price is taken.

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


3. Mumbai India N Vaghul.Kamath. Mumbai and the National Stock Exchange of India Limited and its ADRs are listed on the New York Stock Exchange (NYSE).79 billion www. ICICI Bank's equity shares are listed in India on stock exchanges at Kolkata and Vadodara.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. ICICI Bank has total assets of about USD 56 Billion (end-Mar 2006). Investment vehicles.V. Chanda Kochhar Loans. Bandra Kurla. K. life and non-life insurance. Savings. the Stock Exchange. 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. SBI Life (Insurance) etc. a network of over 619 branches and offices. USD 5. Credit Cards. 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.1 ICICI BANK ICICI Bank Type Founded Headquarters Private BSE & NSE:ICICI. and about 2400 ATMs..icicibank. Nachiket Mor. venture capital and asset management. NYSE: IBN 1955 (as Industrial Credit and Investment Corporation of India) ICICI Bank Ltd.

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

India Chairman and M. 38 . Investment vehicles. 1895 (British India) New Delhi.. Savings.C. The Government of India nationalized the bank.. Credit Cards.3. on July 19. is the second largest public sector commercial bank in India with about 4500 branches and offices throughout the country.D. 1969.32 billion (2005) .the name you can BANK upon www. S.2 PUNJAB NATIONAL BANK Punjab National Bank Type Founded Headquarters Key people Industry Public (BSE. USD 2. Insurance etc.PNBIndia. established in 1895 in Lahore by Lala Lajpat Rai. Mr. along with 13 other major commercial banks of India.com Products Revenue Slogan Website Punjab National Bank (PNB). NSE:PNB) Lahore.Gupta Banking Insurance Capital Markets and allied industries Loans.

was nationalized on 19th July.000. By 1937 it had secured its membership as a Clearing House at Mumbai. established in 1925 in Udupi (Karnataka state. by the Government of India. USD bil Faithful and Friendly (English) & Viswasaneeya Hitheshi (Sanskrit) syndicatebank. A. M.Insurance.3 SYNDICATE BANK Syndicate Bank Type Founded Headquarters Public (BSE & NSE) Udupi. The business started with a capital of Rs. The primary objective of business was to extended financial assistance to local weavers. Savings. Karnataka India & Corporate Office Bangalore Chairman C P SWARNKAR Banking. 80. 39 . The first branch of the bank started its operations in the year 1928 at Brahmavar in Dakshin Kannada District. Pai. 1925 (as Canara Industrial and Banking Syndicate Limited) Head Office. 1969. At the time of its establishment. T.in/ Key people Industry Products Revenue Slogan Website Syndicate Bank. along with 13 other major commercial banks of India. Bajaj Allianz Life Insurance (Insurance) etc. is one of the oldest and major commercial bank of India. The bank. India) by Upendra Ananth Pai. Credit Cards. Manipal.3. Investment vehicles. the bank was known as Canara Industrial and Banking Syndicate Limited. Vaman Kudva and Dr. Initially the bank collected as low as 2 annas from the door steps of the depositors daily through its agents.Capital Markets and allied industries Loans.

Mangalore Stock Exchange and Bangalore Stock Exchange. Delhi.4 CORPORATION BANK CORPORATION BANK 40 . in Muscat (1984).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. It took over Al Shabei Finance and Exchange Co. 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. 20 banks merged with the Canara Industrial and Banking Syndicate Limited this included the Maharastra Apex Bank Limited and Southern India Apex Bank Limited. Currently it has over 1900 branches. By 1989 it opened its 1500th branch at Hauz Khas. From 1953-1964. 3. National Stock Exchange. in Doha (1983) and Musandam Exchange Co. The bank expanded its operations not only on the domestic front but also overseas. Syndicate Bank sponsored the first regional rural bank in India by name Prathama Grameena Bank.

87% of Share Capital is presently held by the Public and Financial Institutions.83 crore (2006) Rs 100. 1906 Corporation Bank. The bank has the distinction of the first Indian bank to publish its financial results (199899) conforming to US GAAP. The bank was founded with an initial capital of Rs.27 Crore (2006)[1] A Premier Government of India Enterprise www. The Bank came out with its Initial Public Offer (IPO) in October 1997 and 37.3. The Bank is a Public Sector Unit with 57. Investment vehicles. has currently (31 March 2004) 10. founded in 1906 in Udupi. Savings. 5000 (USD 100). 054. Mangaladevi Temple Road Pandeshwar Mangalore 575 001 India Chairman B. and operates from several branches in India. Rs 862.Type Founded Headquarters Public (BSE.5 INDIAN OVERSEAS BANK IOB 41 . Sambamurthy Banking Loans. and first day’s canvassed resources of less than one USD 1. 3. Karnataka state.com Key people Industry Products Revenue Net income Slogan Website Corporation Bank.176 full time employees. Credit Cards.17% of Share Capital held by the Government of India. India. etc. is one of the Indian banks in public sector. NSE:CORPBANK) Udipi. The Bank’s Net Worth stood at Rs.92 crores as on 31 March 2005. CORPORATE OFFICE .corpbank.

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

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

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

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

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

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

728 (2005) Slogan "Do more. psychiatry. respiratory.gsk. neurology. Chief Financial Officer Industry Pharmaceutical Products www. London. and respiratory. United Kingdom Key people Sir Chris Gent. 3. Detroit-based Caraco Pharm Labs.com/products Revenue Net income £23. Business Sun Pharma brands are prescribed in chronic therapy areas like cardiology. The same year the company also acquired Dadha Pharma in Tamil Nadu.8 billion (2006) Employees Over 100.1996.2 billion (2006) £7. feel better. diabetology. and healthcare company. Chairman Jean-Pierre Garnier. Sun Pharma acquired the U. It also 48 . by merger of Glaxo Wellcome and Smith Kline Beecham Headquarters Brentford.gsk. biologicals. central nervous system (CNS). live longer" Website www. GSK is a research-based company with a wide portfolio of pharmaceutical products covering anti-infectives. gastroenterology. gastro-intestinal/metabolic.com GlaxoSmithKline plc (LSE: GSK NYSE: GSK) is a British based pharmaceutical.10 GLAXOSMITHKLINE GlaxoSmithKline Type Public (LSE: GSK NYSE: GSK) Founded 2000.S. oncology and vaccines products.. Chief Executive Julian Heslop.

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


5432 0.9063 0.546 0.56 . Σy n Σ x2 – (Σx)2 = 21*40.5299 0.13 1.98 0.781 -1.979 0.7693 – (-7.326 -0.916 -0.101 3.6972 0.330 -0.658 -1.3990 53.3124 0.145 3.892 -0.1603 6.7312 0.546 1.138 -7.482 -2.875 0.175 5.8225 2.482 -0.098 1.924 Σx = -7.963 4.314 0.201 -0.56 Source: Secondary Data β = n * Σxy – Σx .343 -6.271 16.8032 0.4329 1.850 1.7662 5.297 -24.2410 0.427 0.82 -0.13* 1.13) 2 = 851.-7.139 -2.291 2.595 -1.3806 26.337 3.835 0.409 -0.366 3.831 4.737 0.057 17.192 -1.453 4.098 1.591 -0.76 .678 0.952 -0.389 Σy = 1.152 -1.347 -0.-9.630 1.791 -1.532 21.329 -2.724 -0.359 Σxy = 40.269 0.225 -0.497 0.090 2.0403 37.728 0.01-03-2007 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 1.532 51 .1586 6.780 -1.2222 14.1823 0.329 0.402 -1.8537 Σ x2 = 163.7693 1.612 1.337 21* 163.143 0.3540 1.167 -2.2323 0.

3439.1 shows the beta value of ICICI futures and Nifty futures.254 Table 4. Therefore investment in ICICI futures is less risky.292 3388.15 – 50.836 = 861.314 = 0. Since the beta value is less than one. ICICI futures are less volatile. 52 .

702 38.211 3.931 -3.232 12.985 6.333 -3.485 10.250 27.906 -6.Table 4.365 20.849 0.333 X2 .132 15.2 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 -0.25 15.931 0.474 0.515 -2.673 3.865 -0.381 -0.923 3.048 -0.682 Y 3.034 -0.363 5.604 2.391 1.937 3.377 44.028 1.295 5.751 5.354 -3.538 4.588 -4.249 13.181 3.202 1.483 19.02 Source: Secondary Data β = n * Σxy – Σx .108 11.394 22.919 12.490 11.014 23.155 Σxy = 592.355 8.614 1.505 2.249 3.452 11.508 7.361 Σ x2 = 229.770 -3.392 0.50 -3.008 -3.078 -0.378 -3.760 -2.874 1.004 -1.216 5.907 0.088 13.087 -1.943 -0.369 -3. Σy n Σ x2 – (Σx)2 53 .18 XY -3.259 Σy = 18.905 1.134 3.613 2.007 3.8208 42.896 -2.864 1.204 12.214 -0.095 13.593 0.615 -0.475 8.223 -5.388 6.601 Σx = -7.350 9.901 1.

404 3. Table4.e.42 .767 = 2.834 4812.02 .952 -2.559 2.671 6.268 1.682) 2 = 12432.880 0.175 0.299 -2.395 -0.307 -0.310 Y 2. Since the beta value is more than one i.009 1.682 * 18. Corporation Bank futures are highly volatile.607 0.-140.396 25.329 5.18 – (-7.831 -0.644.552 2.78 – 59.500 0.790 27.271 0.458 -0.313 2.2 shows the beta value of ICICI futures and Nifty futures.490 -4.492 -4. 2.113 -1.574 3.538 -0.= 21*592.836 0.170 2.275 5.658 -0.096 1.697 1.076 -3.380 1.303 1.526 -1.361 1.488 10.3 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 0.501 4.013 = 12573.164 53.254 4753.644 Table 4. There fore investment in Corporation Bank is high risky.084 0.212 -7.705 X2 .338 -5.268 -0.218 54 .-7.349 6.096 XY -0.808 -1.574 2.747 4.333 21* 229.

140 -1.634 Table 4.674 Σx = -8.-105.248 Source: Secondary Data β = n * Σxy – Σx .093 3.3 shows the beta value of IOB futures and Nifty futures.129 Σxy = 90.083 9.959 -1.812 2.79) 2 = 1895.20-03-2007 21-03-2007 22-03-2007 23-03-2007 26-03-2007 28-03-2007 29-03-2007 30-03-2007 3.-8.802 Σ x2 = 138.677 1. 55 . IOB futures are less volatile.00 0.389 -1.663 7.63 – 77.337 3.578 2821. There fore investment in IOB futures is less risky.418 -2.179 -0.315 0.919 2.126 -3. Σy n Σ x2 – (Σx)2 = 21* 90. Since the beta value is less than one.03 – (--8.463 2.902 4.017 11.000 -0.37 = 0.017 21* 138.607 -1.455 -0.408 -3.79* -12.208 .63 2898.214 -4.652 13.368 1.326 3.26 = 1789.299 2.117 0.204 -3.248 .79 2.077 Σy = -12.062 9.

920 6.490 -4.214 -4.658 -0.168 6.077 Σy = -11.989 XY 3.036 3.333 0.538 -0.170 2.051 14.814 0.485 -0.315 0.909 3.321 2.344 -2.190 4.836 0.717 5.928 -0.468 -0.072 1.733 18.870 7.781 -4.552 2.952 -2.463 2.114 0.312 0.443 -0.661 Y 2.015 -0.126 -3.330 9.088 Source: Secondary Data 56 .620 Σ x2 = 165.076 -3.145 0.25 5.831 -0.Table 4.788 Σx = -18.711 19.088 1.113 -1.902 4.625 1.832 -3.078 -2.431 -1.377 7.395 -0.957 28.006 4.018 1.257 2.074 5.122 8.791 -1.619 5.626 -0.965 -6.204 -3.492 -4.474 0.651 42.414 X2 1.500 -2.091 -2.717 5.060 0.953 0.418 -2.705 2.968 0.982 18.005 1.787 2.020 12.232 4.759 .605 24.267 -4.4 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 1.792 15.939 -0.060 Σxy = 133.

719 1.539 = 0.339 57 .119 8.-212.661* -11.130 3.356 XY 20.4 shows the beta value of Syndicate Bank futures and Nifty futures.105 3.823 X2 12.492 1.984 0.769 – 348.020 3.23 = 2581.088 .996 3485.801 -1.680 72.832 Y 5.362 6.809 -3.414 21* 165.114 3. Since the beta value is less than one in the month of March.-18.852 3137.822 Table 4.694 50.β = n * Σxy – Σx . Σy n Σ x2 – (Σx)2 = 21* 133. the Syndicate bank futures are less volatile and the investment in syndicate bank futures is less risky.697 28.989 – (-18.848 .563 -7.738 -1. Table 4.5 ANALYSIS OF PUNJAB NATIONAL BANK Date 01-03-2007 02-03-2007 05-03-2007 06-03-2007 07-03-2007 X 3.661) 2 = 2794.

085 0.811 -1.391 0.905 3.899 Source: Secondary Data β = n * Σxy – Σx .198 0.111 0.238 6.825 2.333 – 287.656 24.732 -2.391 5268.873 – (16.859 5.863 -0.980 3.096 14.001 -1.435 2.534 -1.028 Σ x2 = 250.336 3.955* 8.158 4.069 -1.721 -1.953 -1.879 – 151.394 -3.053 3.929 2.08-03-2007 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 1.322 1.669 12.195 0.316 2.271 1.696 5.472 = 2681.103 1.265 3.041 0.934 0.814 1.566 27.955) 2 = 2832.929 21* 250.173 29.448 8. Σy n Σ x2 – (Σx)2 = 21* 134.955 10.778 1.579 3.435 2.538 58 .489 11.240 -3.447 3.093 0.168 Σx = 16.143 0.606 -1.488 4980.857 2.873 2.206 0.157 1.899 – 16.768 -1.948 Σy = 8.961 2.052 -2.955 1.159 Σxy = 134.239 -.198 -1.861 = 0.067 4.580 1.920 -0.453 -0.

294 0. Since the beta value is less than one.655 0.664 1.666 -7.673 0.089 1.387 2.830 1.503 0.696 ΣY=-0.689 20.024 27.6 RANBAXY Source: Secondary Data 59 .156 0.178 -0.793 5. 4.295 -0.125 0.329 0.83 XY -0.5 shows the beta value of Punjab National Bank futures and Nifty futures.472 -2.098 0.887 1.062 volatile and investing in Punjab National Bank futures is less risky.316 -1.336 0.803 ΣX2=174.227 0.667 0.934 ΣXY=132.866 8.957 1.710 -5.363 0.443 51.213 15.353 1.328 -0.926 X2 0.446 -0.657 1.151 0.343 -1.473 36.997 -0.266 3.830 -4.132 0. Table.475 -5.176 -1. 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 -0.524 0.236 2.548 Y 1.798 5.380 -1.259 0.260 -1.786 3.636 29.260 -0.660 -0.031 5.469 0.485 -0.175 0.063 -1.976 27.189 3.381 5.803 2.226 -1.096 -3.580 5.397 -0.942 6.059 0.343 ΣX=-8.514 0.503 3.858 2.201 0.704 4.645 26.189 15.278 -2.047 -0.Table 4.942 -1.394 2.299 -1.

548 * -0.768 Table 4.926 21* 174.43 – 73.062 .362 = 0.β = n * Σxy – Σx .7 60 .-8.83 – (-8. Since the beta value is less than one. it is less volatile and investing in Ranbaxy futures is less risky.387 3598. Table 4.548) 2 = 2773. Σy n Σ x2 – (Σx)2 = 21*132.6 shows the beta value of Ranbaxy futures.915 3671.068 = 2765.302 – 7.

981 ΣX= 6.152 0.149 8.553 0.486 0.007 15.357 -0.676 4.739 -3.744 0.020 -7.738 * -0.719 -0.473 1.328 -0.020 0.667 -1.773 0.165 -0.316 -1.957 1.660 -0.737 0.847 Source: Secondary Data β = n * Σxy – Σx .353 -3.697 -0.252 -0.770 ΣXY= -19.228 XY 4.710 -5.230 0.362 -1.114 1.261 -1.219 11.023 0.475 -5.543 0.047 -0.630 -0.008 0.005 -0.051 0.701 -3.423 3.024 0.466 -2.655 0.381 5.848 ΣX2= 77.672 0.445 2.155 -0.031 5.368 -4.294 0.358 2.193 0.071 0.496 0.204 2.743 -11.068 0.447 -0.831 2.390 -2.171 -0.427 -0.689 -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 3.088 3.096 -3.962 -0.131 2.392 0.481 -0.492 7.696 ΣY= -0.687 3.847 – 6.94 X2 14.948 7.261 -0.94 61 .738 Y 1.189 3.974 2.626 -0.062 -1.329 0.176 -1.093 0. Σy n Σ x2 – (Σx)2 = 21*-19.

054 Y -0.256 0.049 1.453 -1.089 0.554 10.173 0.090 1.572 10.635 62 .356 -5.474 11.7 shows the beta value of Sun Pharma’s futures.572 1.870 0.988 -3.525 -0.788 – 45. this shows that when the market return of the futures is increasing its stock value is coming down.703 2.542 XY 1.101 1.038 13.666 4.573 -3.387 -3.297 -0.663 12.472 12.388 = -0.151 5.40 = -410.592 -1.803 4.152 -2.911 -2.751 0.678 5.756 0.161 -0.121 -1.025 3.173 1.946 -2.718 -4.218 -3. Table 4.428 -0.257 -1.787 .738) 2 = -416.500 X2 9.146 11.011 -1.451 1576.631 8.26 Table 4.223 -1.956 2.8 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 -3.336 1621.022 2.152 -0.433 -2.957 4.-6.446 0.21* 77.228 – (6.404 -2.382 -3. Since the beta value of this future is negative.816 -2.626 25.131 2.489 0.

it is less volatile and the investment in Dabur futures is less risky.825) 2 = 1566.001 2.412 2.314 2.596 Source: Secondary Data β = n * Σxy – Σx .687 -2.780 = 1420.559 ΣXY= 74.510 -1.465 Table 4.771 16.878 3274. Since the beta value is less than one.311 -1.362 1.8 shows the beta value of Dabur futures and Nifty futures.267 = 0.825 3.725 2. 63 .193 ΣY= -9.001 2 ΣX = 155.068 1.942 -4.22-03-2007 23-03-2007 26-03-2007 28-03-2007 29-03-2007 30-03-2007 3.359 ΣX= -14.467 -1. Σy n Σ x2 – (Σx)2 = 21*74.027 9.184 19.086 3.596 .047 – 219.638 3054.84 9.349 -4.210 1.212 3.825 * -9.023 4.907 – (-14.-14.907 10.516 – 145.845 6.84 21* 155.

324 -0.478 2 ΣX = 126.435 -3.349 0.271 -2.046 -2.189 9.150 2.454 3.237 -0.854 0.820 5.961 -1.312 0.867 8.653 -2.766 ΣXY= 55.147 18.322 2.449 25.254 1.314 X2 6.421 7.557 -0.259 2.373 1.189 Source: Secondary Data 64 .201 -0.392 3.400 1.422 2.Table 4.043 -1.872 2.820 0.584 -2.228 -2.845 10.207 2.334 2.885 0.760 0.489 -1.108 ΣY= 1.823 -0.259 2.818 1.731 0.430 2.022 8.901 0.507 6.764 1.066 -1.935 -0.9 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 -2.084 XY 5.692 ΣX= -7.508 0.096 3.134 2.624 0.687 1.154 0.446 -0.614 0.538 0.609 5.416 0.401 0.933 9.970 -2.046 0.112 8.296 2.202 9.421 2.907 -0.649 1.023 6.969 0.086 -2.345 -5.84 Y -2.586 -1.384 4.839 -1.819 0.390 2.961 -3.

418 0.764 – 61.482 3.271 2586.176 0.84) 2 = 1158.030 0.756 0.764 65 .84 * 1.10 GLAXO Date 01-03-2007 02-03-2007 05-03-2007 06-03-2007 07-03-2007 X -0.0001 2.084 – (-7.189 . Σy n Σ x2 – (Σx)2 = 21*55.-10.452 Table 4.015 -1.232 15.445 XY -0. it is less volatile and investing in CIPLA futures is less risky.β = n * Σxy – Σx .314 21* 126.555 0.302 2647.304 = 0. Since the beta value is less than one.230 X2 .-7.930 Y 1.298 1.691 -0. Table 4.120 -2.2 shows the beta value of CIPLA futures and Nifty futures.814 1.013 -1.46 = 1169.088 -4.969 .539 -8.

392 -3.056 -0.066 4.092 0.856 * -10.08-03-2007 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 0.856) 2 = 203.126 54.824 -4.557 1.142 -4.214 1.045 -0.0006 0.424 3.386 0.062 1.236 ΣY= -10.624 ΣX= 10.891 0.649 0. Σy n Σ x2 – (Σx)2 = 21*-9.202 2.552 5.637 2 ΣX = 95.806 0.1392 -3.025 1.10.564 4.925 1.651 2.262 -3.706 .621 0.948 -2.589 0.482 -5.571 1.134 1.042 – 117.1245 1995.851 -1.002 1.507 -1.-109.353 -2.432 5.403 1.0006 2.867 -2.944 -0.706 Source: Secondary Data β = n * Σxy – Σx .903 0.235 -3.134 -3.002 – (-10.458 7.189 66 .800 -5.126 -1.025 0.826 .968 2.806 1.853 = -94.724 1.237 3.138 -1.856 2.807 -1.055 2.606 -2.132 2.421 1.437 1.052 21* 95.192 1.052 0.347 0.255 ΣXY= -9.7015 1877.280 3.

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

investing in ICICI futures. In the month of March 2007. its stock value will come down. Ranbaxy. It shows that when the market value is increasing. The study shows that investing in Corporation Bank futures is high risky. Syndicate Bank.1 FINDINGS: The major findings of the study are: 1. The futures value of Glaxo & Sun Pharma is negative. 3.5. PNB. IOB. 68 . Dabur and CIPLA futures are less risky. 4. There is relationship with share price movements of the valued of NSE futures. The financial future plays an important role in NSE Nifty. 2.

Corporation bank. From the banking industry futures of Icici bank.5. 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. Futures or future contract at transferable specific delivery forward contracts. or that lock in the price today of an exchange. A futures contract is a standardized contract. to buy or sell a certain underlying instrument at a certain date in the future. at a specified price. Indian 69 . which will take place between them at some fixed future date. In finance.2 CONCLUSION A financial future is a futures contract on a short term interest rate. traded on a futures exchange. Syndicate bank.

5. the investors should be very cautious in investing into those futures. Dabur are the companies taken from the pharmaceutical industry. 4. 3. 70 . Ranbaxy.3 RECOMMENDATIONS 1. In March 2007. Financial futures can be used to dwarfs the volume in traditional agricultural contracts. the investment in Corporation Bank futures is highly risky. Ranbaxy. Syndicate Bank.Overseas Bank and Punjab National bank are taken. 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. Cipla. 2. Since the volatility of ICICI futures IOB. Sun Pharma. Dabur and CIPLA futures are less the investors can invest in these futures. Glaxo. PNB.


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

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

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