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.


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

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

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

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

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

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

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

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

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

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

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

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

attractive prices available on the futures contract. The sale of stock futures against a stock portfolio creates a hedged position with returns very similar to those of a short-term. or the difficulty of moving funds quickly and on a large scale into and out of particular stocks. 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. ease of adjusting positions (liquidity). Index futures can provide a means of cheaper access to such a portfolio. acquiring. Stock index futures provide a means of adjusting. fixed-income security. 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. 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. by the cash-forward relationship. Managing index fund portfolios involves considerable oversight in terms of maintaining the correct weights as prices change and reinvesting any dividends that are received. 16 . Otherwise arbitrage trades are possible.Pricing and arbitrage Like futures on fixed income instruments and currencies. Risk management and hedging Overview. 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. stock index futures prices should be related to the underlying cash market by a cost of carry relationship or. An interesting example of users of stock futures as hedging vehicles are brokers and dealers in equities.

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

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

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

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

Because they bind buyer and seller for a pre-specified period of time.Liquidity and market depth In derivatives markets. futures have become widely accepted by money managers. We have investigated some of the features of futures contracts. 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. Economic importance of futures. and derivatives generally. Some may use them to spread risk. Futures. Liquidity typically arises when there are individuals or institutions which continuously wish to buy or sell. 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 . unlike in cash markets. IMPORTANCE OF FUTURES MARKETS Summary. most of the action happens in the future. Liquidity is provided to a large degree by locals (individuals trading on their own capital) trading in the pit. or else by major financial institutions trading in automated systems. 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. others to take on risk on the basis of particular market views. allow economic agents to fine tune the structure of their assets and liabilities to better suit their risk preferences and market expectations. explained some of the basics regarding how they are priced. Market liquidity: A market is liquid when traders can buy and sell without substantially moving the price against them. and given a few applications illustrating how these contracts would be used by risk managers and investors. Over the last decades.

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

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

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

4. 6. 5. Futures have become widely accepted by money managers.3 NEED FOR THE STUDY The needs for the study of financial futures are: 1. Futures are relatively in expensive to execute.1. Financial futures play a prominent role in risk management. financial institutions and corporations have been successfully integrated into risk management and yield enhancement strategies. 2. Futures have been a key instrument in facilitating the modern trend of separating conventional financial products into their basic components. Financial futures have become the corner stone of financial management. 3. 25 . Futures have facilitated the modern trend of separating conventional financial products into their basic components.




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,


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

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

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

Secondary data is mainly used for the study. 2.5 SCOPE OF THE STUDY: This study is done mainly under the ten companies of NSE Nifty.2. internet.7 TOOLS FOR DATA COLLECTION Secondary Data: It is collected from books. 2. magazines etc. The results cannot be generalized. To study the volatility of futures with reference to Banking and Pharmaceutical industries.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. To study the amount of risk of Financial Futures of NSE in the month of March with reference to Banking and Pharmaceutical industries. journals. 32 . 2. Five companies from Banking and five from Pharma industry are taken for the study.4 OBJECTIVES OF THE STUDY • • • To study on the financial futures with reference to NSE Nifty..

9 LIMITATIONS OF THE STUDY Time constrains Geographical constraints This is restricted to Banking and Pharmaceutical Industry 33 .2. 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.8 METHOD OF ANALYSIS The formula used for calculation are: β = n * Σxy – Σx .

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


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

ICICI Bank which undertook normal banking operations . there were rumours that ICICI had a large proportion of Non Performing Loans ("NPA". car loans etc. ICICI founded a separate legal entity . It has operations in the UK. These funds were deployed in large corporate loans.taking deposits. as they are known in India) on its books .it could not take retail deposits. ICICI was not a bank . It has tie-ups with major banks in the US and China. other such institutions were IDBI and SIDBI) with the objective to finance large industrial projects. there has been a general revival in Indian industry (and metal based industry in particular). ICICI Bank now has the largest market share among all banks in retail or consumer financing. All this changed in 1990s. Hong Kong. often at concessional rates. 37 . ICICI bank now has the largest market value of all banks in India. 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. The bank is expanding in overseas markets. Singapore and Canada. before SBI caught up with it. It is widely believed that the proportion of NPAs has come down to prudent levels (even if it were high earlier). ICICI borrowed funds from many multilateral agencies (such as the World Bank). and is widely seen as a sophisticated bank able to take on many global banks in the Indian market. The bank is aggressively targeting the NRI (Non Resident Indian) population for expanding its business.It was the first bank to offer a wide network of ATM's and had the largest network of ATM's till 2005. It acquired a small bank in Russia recently.in particular to the steel industry. The experiment was so successful that ICICI merged into ICICI Bank ("reverse merger") in 2002. At the time of the reverse merger. Since 2002. ICICI Bank is the largest issuer of credit cards in India . credit cards.

Savings. India Chairman and M. NSE:PNB) Lahore.. S. on July 19.D.com Products Revenue Slogan Website Punjab National Bank (PNB).3.PNBIndia. along with 13 other major commercial banks of India. Mr.C. Credit Cards.the name you can BANK upon www. USD 2. is the second largest public sector commercial bank in India with about 4500 branches and offices throughout the country.32 billion (2005) . Investment vehicles.2 PUNJAB NATIONAL BANK Punjab National Bank Type Founded Headquarters Key people Industry Public (BSE..Gupta Banking Insurance Capital Markets and allied industries Loans. Insurance etc. 1895 (British India) New Delhi. established in 1895 in Lahore by Lala Lajpat Rai. 1969. 38 . The Government of India nationalized the bank.

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

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

Mangaladevi Temple Road Pandeshwar Mangalore 575 001 India Chairman B.corpbank. The bank has the distinction of the first Indian bank to publish its financial results (199899) conforming to US GAAP.Type Founded Headquarters Public (BSE.27 Crore (2006)[1] A Premier Government of India Enterprise www. The Bank’s Net Worth stood at Rs. and first day’s canvassed resources of less than one USD 1.92 crores as on 31 March 2005. 054. Investment vehicles. 5000 (USD 100).com Key people Industry Products Revenue Net income Slogan Website Corporation Bank. etc.176 full time employees.3. has currently (31 March 2004) 10. 1906 Corporation Bank. The Bank is a Public Sector Unit with 57. The Bank came out with its Initial Public Offer (IPO) in October 1997 and 37. Sambamurthy Banking Loans. Savings. 3.83 crore (2006) Rs 100. NSE:CORPBANK) Udipi.5 INDIAN OVERSEAS BANK IOB 41 . founded in 1906 in Udupi.87% of Share Capital is presently held by the Public and Financial Institutions. Credit Cards. is one of the Indian banks in public sector. The bank was founded with an initial capital of Rs. India.17% of Share Capital held by the Government of India. Rs 862. CORPORATE OFFICE . Karnataka state. and operates from several branches in India.

Indian Overseas Bank (IOB) was founded on February 10th 1937.23 Crs at that time. Deposits stood at Rs.M.6 RANBAXY LABORATORIES 42 .Banking.6. Insurance and Industry with the twin objectives of specializing in foreign exchange business and overseas banking. by Shri. a pioneer in many fields . At the dawn of Independence IOB had 38 branches in India and 7 branches abroad.3.Ct. 3. IOB had the unique distinction of commencing business on 10th February 1937 (on the inaugural day itself) in three branches simultaneously .M. Chidambaram Chettyar.64 Crs and Advances at Rs.at Karaikudi and Chennai in India and Rangoon in Burma (presently Myanmar) followed by a branch in Penang.

Ranbaxy went public in 1973. It exports its products to 125 countries with ground operations in 46 and manufacturing facilities in seven countries.7 CIPLA CIPLA Limited 43 . 3. Chairman Brian Tempest. CEO & MD Industry Pharmaceutical Products Generic drugs Revenue $1.178 billion (2005) Employees 1100 in R&D Website www.com Ranbaxy Laboratories Limited is an Indian company incorporated in 1961. Haryana. Executive Vice Chairman Malvinder Mohan Singh. The CEO of the company is Malvinder Mohan Singh. Chief Mentor.ranbaxy. It is ranked among the top 10 generic companies worldwide. India Tejendra Khanna.Ranbaxy Laboratories Limited Type Public Founded 1961 Headquarters Key people Gurgaon. It is India's largest pharmaceutical company.

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

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

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

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

The same year the company also acquired Dadha Pharma in Tamil Nadu. It also 48 . gastroenterology. Detroit-based Caraco Pharm Labs.com GlaxoSmithKline plc (LSE: GSK NYSE: GSK) is a British based pharmaceutical. gastro-intestinal/metabolic. Sun Pharma acquired the U.1996. Chairman Jean-Pierre Garnier.. United Kingdom Key people Sir Chris Gent. GSK is a research-based company with a wide portfolio of pharmaceutical products covering anti-infectives. and respiratory.com/products Revenue Net income £23. 3. psychiatry. diabetology.10 GLAXOSMITHKLINE GlaxoSmithKline Type Public (LSE: GSK NYSE: GSK) Founded 2000.S. Chief Executive Julian Heslop.gsk. biologicals.gsk. Business Sun Pharma brands are prescribed in chronic therapy areas like cardiology. neurology. central nervous system (CNS). feel better. live longer" Website www. London. and healthcare company. Chief Financial Officer Industry Pharmaceutical Products www.8 billion (2006) Employees Over 100. by merger of Glaxo Wellcome and Smith Kline Beecham Headquarters Brentford. respiratory. oncology and vaccines products.728 (2005) Slogan "Do more.2 billion (2006) £7.

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


952 -0.1586 6.143 0.13) 2 = 851.892 -0.326 -0.482 -2.0403 37.8032 0.090 2.225 -0.595 -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 1.409 -0.8225 2.678 0.343 -6.3990 53. Σy n Σ x2 – (Σx)2 = 21*40.167 -2.7693 1.7693 – (-7.329 0.192 -1.2323 0.82 -0.337 3.453 4.138 -7.850 1.1603 6.7662 5.057 17.546 0.201 -0.-9.2410 0.5432 0.7312 0.366 3.13* 1.9063 0.3124 0.963 4.101 3.546 1.098 1.-7.291 2.98 0.532 51 .780 -1.56 Source: Secondary Data β = n * Σxy – Σx .8537 Σ x2 = 163.1823 0.791 -1.728 0.359 Σxy = 40.532 21.3540 1.271 16.297 -24.924 Σx = -7.347 -0.139 -2.5299 0.3806 26.630 1.724 -0.098 1.389 Σy = 1.658 -1.4329 1.76 .329 -2.56 .781 -1.737 0.175 5.269 0.427 0.402 -1.979 0.591 -0.337 21* 163.831 4.314 0.612 1.835 0.6972 0.2222 14.497 0.145 3.482 -0.916 -0.875 0.330 -0.13 1.152 -1.

1 shows the beta value of ICICI futures and Nifty futures. 52 .15 – 50.3439.314 = 0. Therefore investment in ICICI futures is less risky.254 Table 4. ICICI futures are less volatile. Since the beta value is less than one.836 = 861.292 3388.

202 1.034 -0.2 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 -0.008 -3.896 -2.751 5.907 0.538 4.155 Σxy = 592.350 9.508 7.365 20.985 6.108 11.474 0.333 X2 .132 15.614 1.588 -4.615 -0.250 27.014 23.048 -0.901 1.088 13.223 -5.391 1.377 44.849 0.905 1.865 -0.007 3.490 11.354 -3.931 -3.216 5.394 22.181 3.363 5.604 2.087 -1.232 12.295 5.485 10.50 -3.682 Y 3.211 3.028 1.770 -3.214 -0.475 8.601 Σx = -7.25 15.378 -3.078 -0.906 -6.673 3.361 Σ x2 = 229.943 -0.702 38.004 -1.355 8.392 0.931 0.369 -3.505 2.593 0.Table 4.249 13.760 -2.249 3.919 12.937 3.483 19.515 -2.864 1.02 Source: Secondary Data β = n * Σxy – Σx .095 13.204 12.18 XY -3.388 6.134 3. Σy n Σ x2 – (Σx)2 53 .333 -3.452 11.923 3.613 2.381 -0.259 Σy = 18.874 1.8208 42.

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.= 21*592.175 0.644.-7.009 1.084 0.268 -0.e. Corporation Bank futures are highly volatile.574 2.834 4812.42 .607 0.349 6.831 -0.307 -0.164 53.559 2.501 4.404 3.78 – 59.02 .644 Table 4.697 1.113 -1.170 2.313 2.488 10. Since the beta value is more than one i.526 -1. Table4.-140.2 shows the beta value of ICICI futures and Nifty futures.458 -0.333 21* 229.275 5.254 4753.790 27.271 0.076 -3. 2.747 4. There fore investment in Corporation Bank is high risky.682 * 18.808 -1.490 -4.952 -2.705 X2 .658 -0.338 -5.329 5.880 0.552 2.671 6.396 25.361 1.310 Y 2.538 -0.096 1.212 -7.682) 2 = 12432.574 3.303 1.218 54 .492 -4.767 = 2.096 XY -0.299 -2.380 1.18 – (-7.836 0.395 -0.500 0.268 1.013 = 12573.

117 0.20-03-2007 21-03-2007 22-03-2007 23-03-2007 26-03-2007 28-03-2007 29-03-2007 30-03-2007 3.959 -1.37 = 0.077 Σy = -12.677 1. Since the beta value is less than one.248 .455 -0.463 2.919 2.062 9.337 3.179 -0.00 0.607 -1.208 .389 -1.326 3.578 2821.63 2898.79) 2 = 1895.902 4.663 7.26 = 1789.299 2.408 -3.674 Σx = -8. 55 .03 – (--8.634 Table 4.418 -2. IOB futures are less volatile.368 1.315 0.79 2.812 2.802 Σ x2 = 138.017 21* 138.-8.126 -3. Σy n Σ x2 – (Σx)2 = 21* 90.248 Source: Secondary Data β = n * Σxy – Σx .214 -4.3 shows the beta value of IOB futures and Nifty futures.-105. There fore investment in IOB futures is less risky.140 -1.000 -0.083 9.017 11.63 – 77.093 3.79* -12.129 Σxy = 90.204 -3.652 13.

091 -2.468 -0.015 -0.Table 4.538 -0.759 .25 5.953 0.625 1.076 -3.214 -4.088 Source: Secondary Data 56 .939 -0.190 4.036 3.377 7.232 4.170 2.077 Σy = -11.126 -3.705 2.651 42.717 5.072 1.626 -0.074 5.395 -0.620 Σ x2 = 165.078 -2.114 0.989 XY 3.020 12.982 18.928 -0.605 24.920 6.168 6.733 18.490 -4.952 -2.267 -4.711 19.005 1.333 0.836 0.443 -0.485 -0.717 5.902 4.781 -4.204 -3.968 0.788 Σx = -18.4 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 1.431 -1.791 -1.814 0.418 -2.145 0.832 -3.312 0.552 2.330 9.661 Y 2.909 3.787 2.344 -2.006 4.474 0.870 7.113 -1.060 Σxy = 133.321 2.831 -0.414 X2 1.315 0.060 0.965 -6.658 -0.088 1.122 8.463 2.492 -4.257 2.018 1.500 -2.619 5.051 14.957 28.792 15.

661) 2 = 2794.23 = 2581.996 3485.801 -1.105 3.339 57 .020 3.738 -1.119 8.989 – (-18.414 21* 165. Table 4.852 3137.114 3.984 0. Since the beta value is less than one in the month of March.130 3.563 -7.823 X2 12.-212.697 28.769 – 348.822 Table 4.848 .719 1.661* -11.4 shows the beta value of Syndicate Bank futures and Nifty futures.832 Y 5.680 72.β = n * Σxy – Σx . Σy n Σ x2 – (Σx)2 = 21* 133.694 50.5 ANALYSIS OF PUNJAB NATIONAL BANK Date 01-03-2007 02-03-2007 05-03-2007 06-03-2007 07-03-2007 X 3.539 = 0.356 XY 20. the Syndicate bank futures are less volatile and the investment in syndicate bank futures is less risky.809 -3.362 6.-18.492 1.088 .

Σy n Σ x2 – (Σx)2 = 21* 134.863 -0.336 3.198 0.732 -2.955) 2 = 2832.669 12.159 Σxy = 134.961 2.052 -2.198 -1.768 -1.067 4.955 10.534 -1.814 1.955* 8.778 1.579 3.899 Source: Secondary Data β = n * Σxy – Σx .899 – 16.168 Σx = 16.001 -1.873 – (16.143 0.435 2.955 1.920 -0.825 2.606 -1.238 6.333 – 287.111 0.093 0.538 58 .447 3.271 1.394 -3.489 11.053 3.696 5.811 -1.316 2.069 -1.391 5268.103 1.453 -0.206 0.265 3.096 14.721 -1.879 – 151.905 3.158 4.195 0.239 -.322 1.157 1.953 -1.085 0.934 0.08-03-2007 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 1.391 0.929 21* 250.580 1.857 2.929 2.656 24.566 27.859 5.028 Σ x2 = 250.980 3.173 29.448 8.948 Σy = 8.240 -3.861 = 0.488 4980.472 = 2681.041 0.435 2.873 2.

798 5.503 0.381 5.830 -4.328 -0. 4.387 2.024 27.636 29.062 volatile and investing in Punjab National Bank futures is less risky.514 0.475 -5.394 2. Since the beta value is less than one.089 1.353 1.132 0.704 4.926 X2 0.548 Y 1.299 -1.047 -0.645 26.786 3.485 -0.803 ΣX2=174. Table.866 8.580 5.689 20.793 5.226 -1.343 -1.83 XY -0.278 -2.096 -3.178 -0.295 -0.380 -1.472 -2.710 -5.031 5.098 0.887 1.176 -1.942 6.189 15.942 -1.858 2.363 0.151 0.397 -0.316 -1.655 0.446 -0.156 0.503 3.997 -0.189 3.Table 4.227 0.259 0.830 1.524 0.213 15.343 ΣX=-8.673 0.664 1.059 0.294 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 -0.660 -0.934 ΣXY=132.201 0.329 0.473 36.125 0.803 2.469 0.5 shows the beta value of Punjab National Bank futures and Nifty futures.063 -1.443 51.696 ΣY=-0.957 1.260 -0.266 3.260 -1.236 2.657 1.175 0.666 -7.6 RANBAXY Source: Secondary Data 59 .667 0.336 0.976 27.

548) 2 = 2773.387 3598.43 – 73.926 21* 174.915 3671.068 = 2765. Table 4. Since the beta value is less than one.6 shows the beta value of Ranbaxy futures.768 Table 4.83 – (-8.362 = 0. it is less volatile and investing in Ranbaxy futures is less risky.062 .548 * -0.β = n * Σxy – Σx .-8.7 60 . Σy n Σ x2 – (Σx)2 = 21*132.302 – 7.

219 11.672 0.353 -3.193 0.031 5.447 -0.496 0.974 2.368 -4.486 0.773 0.738 * -0.024 0.466 -2.847 Source: Secondary Data β = n * Σxy – Σx .739 -3.655 0.962 -0.701 -3.152 0.981 ΣX= 6.948 7.149 8.008 0.252 -0.660 -0.696 ΣY= -0.114 1.744 0.427 -0.94 X2 14.475 -5.770 ΣXY= -19.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 3.068 0.176 -1.390 -2.358 2.743 -11.088 3.047 -0.94 61 .294 0.553 0.329 0.831 2. Σy n Σ x2 – (Σx)2 = 21*-19.261 -1.005 -0.630 -0.007 15.738 Y 1.093 0.847 – 6.626 -0.957 1.189 3.737 0.362 -1.204 2.062 -1.071 0.316 -1.697 -0.051 0.165 -0.230 0.710 -5.689 -0.023 0.543 0.687 3.676 4.445 2.423 3.473 1.492 7.667 -1.020 -7.848 ΣX2= 77.392 0.228 XY 4.261 -0.131 2.096 -3.357 -0.020 0.719 -0.481 -0.328 -0.155 -0.381 5.171 -0.

152 -2.025 3.151 5.489 0.089 0. Table 4.256 0.956 2.131 2.451 1576.718 -4.173 0.-6.572 1. Since the beta value of this future is negative.26 Table 4.500 X2 9.678 5.525 -0.631 8.40 = -410.297 -0.382 -3.946 -2.173 1.957 4.751 0.218 -3.356 -5.870 0.038 13.474 11.388 = -0.101 1.223 -1.336 1621.453 -1.257 -1.21* 77.146 11.703 2.666 4.663 12.022 2.428 -0.738) 2 = -416.090 1.816 -2.433 -2.542 XY 1.573 -3.049 1.446 0. this shows that when the market return of the futures is increasing its stock value is coming down.152 -0.911 -2.592 -1.572 10.387 -3.7 shows the beta value of Sun Pharma’s futures.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 -3.787 .054 Y -0.011 -1.121 -1.788 – 45.803 4.161 -0.626 25.554 10.472 12.228 – (6.756 0.988 -3.635 62 .404 -2.

349 -4.467 -1.212 3.516 – 145.845 6.725 2.8 shows the beta value of Dabur futures and Nifty futures.359 ΣX= -14. Σy n Σ x2 – (Σx)2 = 21*74.559 ΣXY= 74.311 -1.825 * -9.84 21* 155.825) 2 = 1566.412 2.84 9. Since the beta value is less than one.001 2 ΣX = 155.362 1.22-03-2007 23-03-2007 26-03-2007 28-03-2007 29-03-2007 30-03-2007 3.193 ΣY= -9.878 3274.184 19.687 -2.047 – 219.771 16.510 -1.465 Table 4.068 1.210 1.780 = 1420.638 3054.596 Source: Secondary Data β = n * Σxy – Σx .596 .825 3.942 -4.267 = 0.027 9.907 – (-14.-14. 63 .023 4.001 2.086 3. it is less volatile and the investment in Dabur futures is less risky.314 2.907 10.

478 2 ΣX = 126.314 X2 6.189 9.023 6.687 1.345 -5.259 2.400 1.022 8.150 2.586 -1.421 7.312 0.933 9.189 Source: Secondary Data 64 .624 0.449 25.046 0.154 0.296 2.538 0.935 -0.259 2.430 2.961 -3.446 -0.112 8.349 0.228 -2.907 -0.271 -2.508 0.422 2.9 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 -2.969 0.489 -1.134 2.872 2.970 -2.819 0.901 0.084 XY 5.820 0.096 3.421 2.207 2.764 1.653 -2.454 3.839 -1.401 0.845 10.818 1.867 8.609 5.885 0.108 ΣY= 1.614 0.823 -0.584 -2.086 -2.324 -0.766 ΣXY= 55.390 2.147 18.046 -2.322 2.435 -3.254 1.854 0.557 -0.237 -0.692 ΣX= -7.416 0.760 0.334 2.961 -1.84 Y -2.820 5.202 9.392 3.201 -0.384 4.649 1.Table 4.731 0.373 1.066 -1.043 -1.507 6.

314 21* 126.10 GLAXO Date 01-03-2007 02-03-2007 05-03-2007 06-03-2007 07-03-2007 X -0.969 .814 1.418 0.β = n * Σxy – Σx .930 Y 1.764 65 .302 2647.189 .482 3.015 -1.232 15.120 -2. Table 4.230 X2 .691 -0.-7.756 0.013 -1.539 -8.084 – (-7. it is less volatile and investing in CIPLA futures is less risky.088 -4.84 * 1.304 = 0.84) 2 = 1158.46 = 1169.0001 2.445 XY -0.452 Table 4.176 0. Since the beta value is less than one.298 1.2 shows the beta value of CIPLA futures and Nifty futures.271 2586.-10.764 – 61.030 0.555 0. Σy n Σ x2 – (Σx)2 = 21*55.

025 0.134 1.806 1.807 -1.403 1.353 -2.432 5.824 -4.944 -0.856 2.424 3.649 0.10.280 3.235 -3.800 -5.092 0.856) 2 = 203.564 4.968 2.347 0.042 – 117.045 -0.7015 1877.891 0.557 1.386 0.0006 2.025 1.826 .706 Source: Secondary Data β = n * Σxy – Σx .134 -3.262 -3.062 1.192 1.706 .-109.132 2.507 -1.1245 1995.126 54.066 4.214 1.552 5. Σy n Σ x2 – (Σx)2 = 21*-9.392 -3.056 -0.903 0.237 3.126 -1.925 1.856 * -10.189 66 .867 -2.421 1.724 1.052 0.138 -1.08-03-2007 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 0.1392 -3.853 = -94.437 1.624 ΣX= 10.806 0.851 -1.0006 0.002 – (-10.052 21* 95.255 ΣXY= -9.142 -4.236 ΣY= -10.002 1.055 2.589 0.458 7.571 1.202 2.621 0.606 -2.948 -2.482 -5.651 2.637 2 ΣX = 95.

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

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

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

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


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

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

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