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STUDY ON DERIVATIVES AS A TOOL FOR HEDGING Submitted in partial fulfillment of the requirements for the award of the Degree

of Bachelor of Business Management Of Christ University By SNEHA JAIN (Reg. No. 1011263) Under the guidance of Prof. VIJAY AGAWANE

Department of Management Studies CHRIST UNIVERSITY BANGALORE 2013

CERTIFICATE (Company-Optional)

CERTIFICATE This is to certify that SNEHA JAIN, (Reg. No. 1011263) is a bonafide student of Bachelor of Business Management of Christ University, Bangalore and she has prepared and submitted the project report, titled “Derivatives as a tool for hedging” in partial fulfillment of the requirements for the award of the Degree of Bachelor of Business Management of Christ University, Bangalore, for the academic year 2012-2013.

Place: Bangalore Mathew Date: 20-02-2013 Studies

Dr. HOD

Jain

Dept. of Management

CERTIFICATE This is to certify that the project report, titled “Derivatives as a tool for hedging” submitted to Christ University, in partial fulfillment of the requirements for the award of the Degree of Bachelor of Business Management, is a record of original research work done by Sneha Jain, during the period 2012 – 2013 of her study in the Department of Management Studies at Christ University, Bangalore, under my supervision and guidance and the project report has not formed the basis for the award of any Degree/ Diploma/ Associate ship/ Fellowship or other similar title of recognition to any candidate of any University.

Date: 20 - 02 - 2013 Agawane

Prof. Vijay

DECLARATION I, Sneha Jain, hereby declare that the project report, titled “Derivatives as a tool for hedging” submitted to Christ University, in partial fulfilment of the requirements for the award of the Degree of Bachelor of Business Management is a record of original and independent research work done by me during 2012 – 2013 under the supervision and guidance of Prof. Vijay Agawane, Department of Management Studies and it has not formed the basis for the award of any

2013 Jain Sneha . Date: 20 .Degree/ Diploma/ Associate ship/ Fellowship or other similar title of recognition to any candidate of any University.02.

ACKNOWLEDGEMENT Sneha Jain .

It is the study of how investors allocate their assets over time under conditions of certainty and uncertainty. individuals and others on the terms that are most favourable to achieve their economic objectives. A key point in finance. The word finance was originally a French word. is the time value of money. investments. Finance is not restricted only to the exchange and/or management of money. Finance can be defined as.INTRODUCTION TO FINANCE Finance is the study of funds and management. assets. money. firms. it has found a permanent place in the English dictionary. Finance addresses the methods wherein business entities used their financial resources on a certain period of time. It is one of the most important aspects in handling business. Finance aims to price assets based on their risk level. It is the application of a set . and expected rate of return. risk. It is basically focused on how the money is spent and budgeted. and the interrelation between the given factors. and public finance. Finance is an art of managing various available resources like money. etc. we can say. securities. In the 18th century. which affects decisions.” "Finance is the procurement of funds and effective utilisation of funds.” Since then. Finance is nothing but an exchange of available resources. which states that a unit of currency today is worth more than the same unit of currency tomorrow. It also deals with the concepts of time. It also deals with profits that adequately compensate for the cost and risks borne by the business. “Finance is a simple task of providing the necessary funds (money) required by the business of entities like companies. Thus. A barter trading system is also a type of finance." The general areas of finance are business finance. personal finance. it was adapted by English speaking communities to mean “the management of money.

of techniques used by organizations in managing their financial affairs. instalment sales. financing. The capital budget is mainly concerned with the proposed fixed asset requirements. The central banks are the last resorts that handle the monetary funds. Nowadays. The advantages of a credit trade are . required investment. These bonds are sold to investors by financial corporations who have exceeded beyond their expenditures. Financial capital is a monetary resource that allows businesses to purchase items that will create goods for production and other services. A bank provokes the activities of both borrowers and lenders. credit cards. The outline includes the objectives of the business. financing source. It has six main sections such as the beginning cash balance. cash excess. loans have been packaged for resale. cash deficiencies. The income and expenditure are emphasized in finance and its differences can easily be indicated. resulting costs. and the management of current assets. planned sales. The budget is the documentation of the entire entrepreneurship. The investor can now collect all the interests and be sold again through a secondary market. and supplier credits. Financial instruments are also used to secure these assets on securities exchanges such as stock exchanges and bonds. cash collections. Investments are managed carefully under a financial risk management to control gambling chances of these financial assets. the target sets. and financial results. The financing of the expenditure is also indicated in the capital budget. This means that the debt has been bought by an investor from the bank. cash disbursements. A credit comes in various forms such as of open accounts. Lenders pay deposits to banks on which it pays the interest rates. growth. These banks affect the interest rates being charged such as an increase in the money supply will result to a decrease in the interest rates. Banks serve as facilitators to companies in the provision of credit and mutual funds. It can be directed on long term or on a short term basis. the ending cash balance. A detailed plan of all the sources and cash usage is emphasized in the cash budget.

increase in profits. An effective credit control may lead to increase in sales. Planning for a secured financial future within the environments economic stability is one primary concern of the personal finance as well. drawing in more customers than cash trades. and increases company capitalization. and health insurance. Taking legal actions is one part of the many duties of the credit department. Meanwhile. It is concerned on financial resources and its usage. corporate finance holds a task in providing financial resources for certain organizations and balances risks and profitability. It will also identify the credit score of the lender and the actual financial standing. secured loans.gaining loyalty and goodwill amongst costumers. and increases rates. builds customer loyalty. high administration expenses. Shortterm funding comes from a line of credit given by banks as a working capital. It can help to identify risks and benefits while planning to set up one’s business. stimulates agricultural and industrial production. It is referred as SME finance for small enterprises. Finance gives you . But there are also disadvantages to credit trades as well such as risks of bad debt. paying for education. reduces bad debts. chambers of commerce. risks of bankruptcy declaration. Studying finance will lead to wiser decisions making on financial funds. Tax policies and family assets will certainly affect personal decisions. and retirement plans. The information on creditworthiness is acquired through credit agencies. bank references. Bonds are long-term funds created by ownership equity and long-term credits. There are various factors that affect decisions in handling personal finance which are financing durable goods. Managerial finance maximizes a company’s wealth and it also values the stocks. credit agencies. minimal debt obligations. and credit application forms. monthly bills. necessitates more working capital. Personal finance is related to how much money is needed by an individual. and leading to purchasing nonessential items.

Relationship shows balanced behavior of officers of finance department and other department's officers. They should concentrate on one target of company and many other things. we can include production and its department. marketing and its department and personnel and its department. Relationship of Finance with Other Discipline In these other discipline. . they should know for creating good relation.optimum control over your financial assets which will certainly help you in attaining a financially secured life.

we can understand that production department is dependent on finance department’s decision.• Relationship of Finance with Production Production department’s main duty is to produce the goods. it needs raw material. it will be helpful for increase sale and profitability and it will again recycle the fund with high profit in finance department. • Relationship of Finance with Marketing Marketing department’s main duty is to sell maximum goods and satisfy the consumers. production department needs money and fund which will be fulfilled by finance department. If both department does meeting and show behavior like good relative. business team can succeed in business. but sometime finance department will not all specific marketing expenses but marketing department need that type of expenses for promotion of sales. For this marketing department makes his marketing budget and it is cleared by finance department. if production department performs his duty honestly and products are produced and sold on time. the problem can easily solve. After this. Both should be adopt cooperative view for each other. Good relations will be helpful for both departments. Finance department checks the budget of production department and allow funds for production department. So. Both are players of business team. For developing the product. Its product’s input cost will decrease if all products are sold by marketers of company. promotion activities and distribution activities of marketing department need some money for paying salesmen. With this view. For paying all expenses. Both departments should think that both are the part of company’s organization and co- . This will create confliction. For producing goods. Now. we can say both are dependent on each other. advertising budget and other promotional expenses. labor and other expenses.

They are human resource capital of company. financial decisions are also very necessary in human resource area. . If personnel department and finance department work together with co-operation. at that time finance department should help marketing department for arrangement of money for buying raw material and supplying quickly without any delay. Corporate are moving to the development of employees. investment in training of employees. both department should understand each other’s objective and should help other department for fulfilling the objectives. Sometime. So. marketing department obtains big order for supplying the goods. It is the objective of company to satisfy employee by fulfilling their financial needs. It is also objective of company to reduce the misuse of fund by paying excess salary that required cost of doing work by employee. Now. One more thing. both departments can satisfy the objectives of company. incentive schemes and retirement schemes etc should be calculated like other investment and both departments should take maximum advantages from this asset.ordination between them is must. • Relationship of Finance with Human Resources Human Resource is that science which manages the employees of company and finance is that science which manages the money.

investors. financial institutions. The most important use of derivatives is in transferring market risk. traders. sugar. enhancing the yield on assets and modifying the payment structure on assets. My study focuses mainly on how effectively traders. soybean. a derivative instrument derives its value from some underlying variable. Derivatives are specialized contracts which are employed for a variety of purposes including reduction of funding costs by borrowers. etc. to buy or sell an asset in future. index. These contracts are legally binding agreements. coffee etc. Thus. made on the trading screen of stock exchanges. crude oil. But they are using derivatives mostly for hedging their price. In recent years. investors and those dealing in the derivatives can minimize the risk and hedge more successfully. Derivatives are an emerging financial product. Risk minimization is one of the measures that can be best applied in derivatives. interest rate. customers. Different types of people use derivatives for different purposes. called hedging. They are producers. derivatives have increasingly become important in the field of finance. Thus derivatives are a very important tool of risk management. rupee dollar exchange rate. The asset can be a share. which a protection against losses resulting from unforeseen price or volatility changes. cotton. bond.INTRODUCTION TO THE STUDY Derivatives are financial contracts whose value/price is dependent on the behavior of the price of one or more basic underlying assets (often simply known as the underlying). Factors driving the growth of derivatives .

On the basis of the analysis I have been able to interpret that risk .Over the last three decades. Some of the factors driving the growth of financial derivatives are: • • • • Increased volatility in asset prices in financial markets Increased integration of national financial markets with international markets Marked improvement in communication facilities and sharp decline in their costs Development of more sophisticated risk management tools. reduced risks as well as transactions costs as compared to individual financial assets HIGHLIGHTS OF THE RESEARCH PROJECT The main objective of the study is to analyze different strategies available for minimizing the risks in derivatives for different market conditions and to identify how the investor can reduce his risk using derivatives and speculate effectively. the derivatives market has seen a phenomenal growth. which optimally combine the risks and returns over a large number of financial assets leading to higher returns. A large variety of derivative contract have been launched at exchanges across the world. providing economic agents a wider choice of risk management strategies • Innovations in the derivatives markets. The title of the project is “A Study on Derivatives as a tool for hedging ” Besides that I am also trying to gain basic knowledge about derivatives For studying and analyzing purpose I have used some of the most popular index of nifty with my company indiabulls and calculated beta value which shows the volatility of the stock. The study also includes the findings derived from the analysis and interpretation of the secondary data collected.

which obligated him to the marriages but that does not matter.. To start we need to go back to the Bible. So derivatives were around before the time of Christ. he purchased another option. Thales the Milesian purchased options on olive presses and made a fortune off of a bumper crop in olives. Jacob ended up with two wives. but because he preferred Rachel. His prospective father-in-law.C. perhaps making this not only the first derivative but the first default on a derivative. believed to be about the year 1700 B. reneged. one way or the other. Laban required Jacob to marry his older daughter Leah. who became the patriarchs of the twelve tribes of Israel. requiring seven more years of labor. The first exchange for trading derivatives appeared to be the Royal Exchange in London. Jacob purchased an option costing him seven years of labor that granted him the right to marry Laban's daughter Rachel. Around 580 B. Some argue that Jacob really had forward contracts.minimization techniques can be effectively applied in the derivatives and can be used for hedging the price. and a lot of domestic friction. which is not surprising. bigamy being allowed in those days. twelve sons. . before going for hedging the investors should have a clear idea about derivatives and before they implement various risk minimization strategies of derivatives it is important for these investors to have a thorough knowledge of about the market. and finally married Rachel. Moreover.C. Jacob did derivatives. Jacob married Leah.. HISTORY OF DERIVATIVES The history of derivatives is quite colorful and surprisingly a lot longer than most people think. however. In Genesis Chapter 29.

The grain could always be sold and delivered anywhere else at any time.which permitted forward contracting. its facilities were underutilized in the spring. These contracts were eventually standardized around 1865. The first "futures" contracts are generally traced to the Yodoya rice market in Osaka. and in 1925 the first futures clearinghouse was formed. was the creation of the Chicago Board of Trade in 1848. although it is not known if the contracts were marked to market daily and/or had credit guarantees. Chicago's storage facilities were unable to accommodate the enormous increase in supply that occurred following the harvest. The celebrated Dutch Tulip bulb mania. futures markets. which permitted farmers to lock in the price and deliver the grain later. These to-arrive contracts proved useful as a device for hedging and speculating on price changes. A group of grain traders created the "to-arrive" contract. This allowed the farmer to store the grain either on the farm or at a storage facility nearby and deliver it to Chicago months later. From that point on. published 1841 but still in print. Chicago was developing as a major center for the storage. Farmers and traders soon realized that the sale and delivery of the grain itself was not nearly as important as the ability to transfer the price risk associated with the grain. however. Similarly. and the most significant as far as the history of U. Japan around 1650. S. futures contracts were pretty much of the form we know them today. which you can read about in Extraordinary Popular Delusions and the Madness of Crowds by Charles Mackay. These were evidently standardized contracts. Due to the seasonality of grain. and distribution of Midwestern grain. which made them much like today's futures. sale. Due to its prime location on Lake Michigan. . was characterized by forward contracting on tulip bulbs around 1637. Probably the next major event. Chicago spot prices rose and fell drastically.

In 1922 the federal government made its first effort to regulate the futures market with the Grain Futures Act. was formed. Bucket shops are small operators in options and securities that typically lure customers into transactions and then flee with the money. The early twentieth century was a dark period for derivatives trading as bucket shops were rampant. All the while options.In the mid 1800s. Sage was creating a synthetic loan with an interest rate significantly higher than usury laws allowed. futures/options/derivatives trading was banned numerous times in Europe and Japan and even in the United States in the state of Illinois in 1867 though the law was quickly repealed. Interestingly. One of the first examples of financial engineering was by none other than the beleaguered government of the Confederate States of America. The holder of the bond had the option to convert the claim into cotton. It became the modern day Merc in 1919. the south's primary cash crop. This permitted the Confederate States to borrow money in sterling with an option to pay back in French francs. In 1936 options on futures were banned in the United States. futures and various derivatives continued to be banned from time to . Other exchanges had been popping up around the country and continued to do so. call. By fixing the put. setting up shop elsewhere. In 1874 the Chicago Mercantile Exchange's predecessor. and strike prices. famed New York financier Russell Sage began creating synthetic loans using the principle of put-call parity. which is sued a dual currency optionable bond. Sage would buy the stock and a put from his customer and sell the customer a call. the Chicago Produce Exchange.

"you can create futures contracts on anything but onions. The Best decision denied the deductibility of capital losses against ordinary income and effectively gave hedging a tax disadvantage. the law in effect says. But the significance is that a group of Michigan onion farmers.” In 1972 the Chicago Mercantile Exchange. created the International Monetary Market. succeeded in banning a specific commodity from futures trading. Another significant event of the 1950s was the ban on onion futures. In 1975 the Merc responded with the Treasury bill futures contract. reportedly enlisting the aid of their congressman.time in other countries. To this day. one based on Ginnie Mae (GNMA) mortgages. which allowed trading in currency futures. a young Gerald Ford. though that is probably because they were banned. this interpretation was overturned in 1993. It was held up as an example. For only about $1. responding to the now-freely floating international currencies. Onion futures do not seem particularly important. either good or bad depending on your perspective. The CBOT resuscitated it several times. it eventually died. of the enormous leverage in futures. The 1950s marked the era of two significant events in the futures markets. Fortunately. While the contract met with initial success. These were the first futures contracts that were not on physical commodities. you . This ruling stood until it was challenged by the 1988 ruling in the Arkansas Best case. but it never became viable. and now less than that. changing its structure.000. This contract was the first successful pure interest rate futures. In 1955 the Supreme Court ruled in the case of Corn Products Refining Company that profits from hedging are treated as ordinary income. and we do not hear much about them. In 1975 the Chicago Board of Trade created the first interest rate futures contract.

as it came to be known. were using derivatives to hedge.controlled $1 million of T -bills. the option pricing model of Fischer Black and Myron Scholes. Though originally known as the CBOE 100 Index. the Kansas City Board of Trade launched the first stock index futures. The Chicago Mercantile Exchange quickly followed with their highly successful contract on the S&P 500 index. Wall Street turned increasingly to the talents of mathematicians and . which remains the most actively traded exchange-listed option. The 1980s marked the beginning of the era of swaps and other over-the-counter derivatives. and in some cases. exchange rate and commodity risk. and even some that were not so large. In 1982. In 1983. the generation of corporate financial managers of that decade was the first to come out of business schools with exposure to derivatives. New products were rapidly created to hedge the now-recognized wide varieties of risks. which went on to be the highest volume contract. In 1982 the CME created the Eurodollar contract. As the problems became more complex. speculate on interest rate. The Black-Scholes model. the CBOT created the T -bond futures contract. These events revolutionized the investment world in ways no one could imagine at that time. Soon virtually every large corporation. 1973 marked the creation of both the Chicago Board Options Exchange and the publication of perhaps the most famous formula in finance. the Chicago Board Options Exchange decided to create an option on an index of stocks. In 1977. Although over-the-counter options and forwards had previously existed. set up a mathematical framework that formed the basis for an explosive revolution in the use of derivatives. it was soon turned over to Standard and Poor's and became known as the S&P 100. a contract on the Value Line Index. which has now surpassed the T -bond contract to become the most actively traded of all futures contracts.

However “credit risk” remained a serious problem to deal with these problems a group of Chicago Board of Trade (CBOT) in 1848. While some minor changes occurred in the way in which derivatives were sold. In 1865 the CBOT went one step further and listed the first “exchange traded” derivatives contract in the US. In 1919. these contracts were called “futures contracts”. sometimes against the instruments and sometimes against the firms that sold them. One of America's wealthiest localities. Early forward contracts in the US addressed merchants concerns about ensuring that there buyers and sellers for commodities. The primary intention of CBOT was to provide a centralized location known in advance for buyers and sellers to negotiate forward contracts. but more accurately. .physicists. These and other large losses led to a huge outcry. offering them new and quite different career paths and unheard-of money. California. Orange County.year old clerk in its Singapore office." In 1994 the derivatives world was hit with a series of large losses on derivatives trading announced by some well-known and highly experienced firms. The CBOT and the CME remain the two largest organized futures exchanges.term Treasury securities. declared bankruptcy. most firms simply instituted tighter controls and continued to use derivatives. allegedly due to derivatives trading. indeed the two largest “financial” exchanges of any kind in the world today. due to the use of leverage in a portfolio of short. Chicago Mercantile Exchange (CME). such as Procter and Gamble and Metallgesellschaft. England's venerable Barings Bank declared bankruptcy due to speculative trading in futures contracts by a 28. The instruments became more complex and were sometimes even referred to as "exotic.

are major users of index-linked derivatives. especially among institutional investors. traded on Chicago Mercantile Exchange. Currently the most popular stock index futures contract in the world is based on S&P 500 index. However. • They will innovate as a way of life. futures on t-bills and Euro –Dollar futures are the most popular futures contracts traded today. . their complexity and also turnover. Derivative products initially emerged as hedging devices against fluctuations in commodity prices. the market for financial derivatives has grown tremendously in terms of variety of instruments available. Index futures.The first stock index futures index futures contract was traded at Kansas City Board of Trade. Even small investors find the easeful due to high correlation of the popular indexes with various portfolios and ease of use. In the class of equity derivatives all over the world. financial futures became the most active derivatives instruments generating volumes many times more than the commodity futures. Financial derivatives came into spotlight in the post –1970 periods due to growing instability in the financial markets. In recent years. During the mid eighties. The lower costs associated with index derivatives vis-à-vis derivative products based on individual securities is another reason for their growing use. futures and options on stocks. and commodity –linked derivatives remained the sole form of such products for almost three hundred years. since their emergence these products have become very popular and by 1990s. they accounted for about two-thirds of total transactions in derivative products.

• • They will compete on value in meeting member needs. They will achieve leadership in related niche markets.1. this is another crucial concept to know. If two potential investments had the same expected return. then square the number). the one with the lower standard deviation would be considered to have less potential risk. The variance is calculated by weighting the dispersion by its relative probability (take the difference between the actual return and the expected return.6 Quantitative Analysis One of the concepts used in risk and return calculations is standard deviation. not on price. The standard deviation of an investment's expected return is considered a basic measure of risk. 1. . Standard deviation takes into account both systematic risk and unsystematic risk and is considered to be a measure of an investment's total risk. which measures the dispersion of actual returns around the expected return of an investment. Since standard deviation is the square root of the variance.

the higher the number. and potentially.0. However. a stock or a portfolio with a beta higher than 1. this stock (or fund) would likely return only 8. this would indicate that if the market increased by 10%.0 is predicted to have a higher risk. Typically. • Alpha: measures stock-price volatility based on the specific characteristics of the particular security. the market as a whole is assigned a beta of 1.5%. Conversely. So.85. if a stock (or fund) had a beta of 0.5%. if the market dropped 10%. a higher return than the market. • R-Squared: Measures the percentage of an investment's movement that are attributable to movements in its benchmark index • Standard Deviation: Measures how much return on an investment is deviating from the expected normal or average returns . As with beta. the higher the risk. Beta is a relative measure of systematic risk. this stock would likely drop only 8.Risk measures There are many statistical risk measures used to predict volatility and return such as: • Beta: measures stock-price volatility based solely on general market movements.

provides a fully automated screen-based trading for Nifty futures & options and stock futures and options on a national wide basis and an online monitoring and surveillance mechanism. called NEAT-F&O trading system. Single stock futures were launched on November 9. 2001 and trading in options on individual securities commenced on July 2. 2000. It is similar to that of trading of equities in cash market segment. 2001. It supports an anonymous order driven market which provides complete transparency of trading operations and operates on strict pricetime priority. . Three contracts are available for trading with 1 month. 2001. 2 months and 3 months expiry. A new contract is introduced on the next trading day following the expiry of near month contract.DERIVATIVES MARKET AT NSE The derivatives trading on the exchange commenced with S&P CNX Nifty Index futures on June 12. Currently. The index futures and option contract on NSE are based on S&P CNX Nifty Index. the futures contracts have a maximum of 3-month expiration cycles. The trading in Index options commenced on June 4. The futures and options trading system of NSE.

Of course. Derivative contracts can be standardized and traded on the stock exchange. The primary objectives of any investor are to bring an element of certainty to returns and minimise risks. In simpler form. To reduce this risk. loan. equity shares and instruments fluctuate all the time. risk instrument or contract for differences or any other form of security . Derivatives are products whose val ue is derived from one or more basic variables called underlying assets or base . A Derivative includes : (a) a security derived from a debt instrument. petroleum and other commodities. Derivatives are widely used for hedging. Derivatives are contracts that originated from the need to limit risk. whether secured or unsecured. modern finance provides a method called hedging. Or they can be customised as per the needs of the user by negotiating with the other party involved. Such derivatives are called exchange-traded derivatives. Prices of foreign currencies. . and poses a significant risk to those whose businesses are linked to such fluctuating prices . Such derivatives are called over-the-counter (OTC) derivatives. some people use it to speculate as well – although in India such speculation is prohibited. share. derivatives are financial security such as an option or future whose value is derived in part from the value and characteristics of another an underlying asset.INDUSTRY PROFILE One of the key features of financial markets are extreme volatility.

(b) a contract which derives its value from the prices. Future Contracts . are very common in everyone life. 4. Forward Contracts A forward contract is an agreement between two parties – a buyer and a seller to purchase or sell something at a later date at a price agreed upon today. They help in transferring risks from risk adverse people to risk oriented people. Advantages of Derivatives: 1. 2. They increase the volume traded in markets because of participation of risk adverse people in greater numbers. or index of prices. futures. They increase savings and investment in the long run. 3. options and swap. sometimes called forward commitments . They help in the discovery of future as well as current prices. They catalyze entrepreneurial activity. of underlying securities. Any type of contractual agreement that calls for the future purchase of a good or service at a price agreed upon today and without the right of cancellation is a forward contract. 5. Types of Derivative Instruments: Derivative contracts are of several types. Forward contracts. The most common types are forwards.

Calls give the buyer the right but not the obligation to buy a given quantity of the underlying asset. called future markets. Puts give the buyer the right.A futures contract is an agreement between two parties – a buyer and a seller – to buy or sell something at a future date. In the daily settlement. Currency swaps: These entail swapping both principal and interest between the parties. The two commonly used swaps are interest rate swaps and currency swaps. investors who incur losses pay them every day to investors who make profits. futures contracts trade on organized exchanges. but not the obligation to sell a given quantity of the underlying asset at a given price on or before a given date. The contact trades on a futures exchange and is subject to a daily settlement procedure. Unlike forward contracts. with the cash flows in one direction being in a different currency than those in the opposite direction. PLAYERS OF DERIVATIVES MARKET . at a given price on or before a given future date. Future contacts also differ from forward contacts in that they are subject to a daily settlement procedure. They can be regarded as portfolios of forward contracts. Interest rate swaps: These involve swapping only the interest related cash flows between the parties in the same currency. Swaps Swaps are private agreements between two parties to exchange cash flows in the future according to a prearranged formula. Future contracts evolved out of forward contracts and possess many of the same characteristics. Options Contracts Options are of two types – calls and puts. 2. 1.

They are Hedgers Hedgers are the traders who wish to eliminate the risk (of price change) to which they are already exposed. . hedging is also common in the foreign exchange market where fluctuations in the exchange rate have to be taken care as transactions are in the foreign currency. It could also be used in the commodities market where spiraling oil prices have to be tamed using the derivative instrument. Again traders dealing in exports and imports are subject to fluctuations in the exchange rates called forex risk.There are three types of players in the derivatives market. They consume information. They earn profits by trading a given commodity or other item for different prices in different markets. The main objective of these kinds of traders is to reduce the risk and not for making profits. So. apart from the equity markets. they are bet whether the market would go up or down. These people take positions in the market and assume risks to profit from fluctuations in prices. Arbitrageurs Arbitrageurs thrive on market imperfections. Speculators Hedgers are the people who wish to avoid the price risk and speculators are those who are willing to take such risk. Thus arbitrage involves making risk-less profit by simultaneously entering into transactions into two or more markets. make forecasts about the prices and put their money in these forecasts. By taking positions.

The Derivatives Exchange/Segment shall have on-line surveillance capability to monitor positions. quantities and quotes on a real time basis through at least two information vending networks. 2. which are easily accessible to investors across the country. and volumes on a real time basis so as to deter market manipulation. The Derivatives Exchange/ Segment should have arrangements for dissemination of information about trades. safety and integrity and provide facilities for redressal of investor grievances. They could be making money even without putting their own money in and such opportunities often come up in the market but last for very shot time frames. This is because as soon as this situation arises arbitrageurs take the advantage before demand-supply forces drive the market back to the normal. if a certain share is quoted at a lower rate on the Delhi stock exchange (DSE) and at a higher rate at Bombay stock exchange (BSE). prices. 3.For example. . an arbitrageur would profit by buying the share at DSE and simultaneously selling it at BSE. SEBI Guidelines: SEBI has laid the eligibility conditions for Derivative Exchange/Segment and its Clearing Corporation/House to ensure that Derivative Exchange/Segment and Clearing Corporation/House provide a transparent trading environment. Derivative trading to take place through an on-line screen based Trading System. Some of the important eligibility conditions are : 1.

5. The concept of value-at-risk shall be used in calculating required level of initial margins. 12. The level of initial margin on Index Futures Contracts shall be related to the risk of loss on the position. The Clearing Corporation/House shall perform full novation. the Clearing Corporation/House shall interpose itself between both legs of every trade. the Clearing Corporation/House shall transfer client positions and assets to another solvent Member or close-out all open positions. The Derivatives Exchange/Segment should have satisfactory system of monitoring investor complaints and preventing irregularities in trading. The Clearing Corporation/House shall have the capacity to monitor the overall position of Members across both derivatives market and the underlying securities market for those Members who are participating in both. 7. 9. becoming the legal counterparty to both or alternatively should provide an unconditional guarantee for settlement of all trades.e. In the event of a Member defaulting in meeting its liabilities. The initial margins should be large enough to cover the oneday loss that can be encountered on the position on 99 per cent of the days. The Clearing Corporation/House should have capabilities to segregate initial margins deposited by Clearing Members for trades on their own account and on account of his .4. The Clearing Corporation/House shall establish facilities for electronic funds transfer (EFT) for swift movement of margin payments. 11. The Derivatives Exchange/Segment should have arbitration and investor grievances redressal mechanism operative from all the four areas/regions of the country. i. 8. 6.. 10. The Derivative Segment of the Exchange would have a separate Investor Protection Fund.

The order will be executed with the identity of the client and without client ID order will not be accepted by the system.client. extended by the Member. The Trading Member is required to provide every investor with a risk disclosure document which will disclose the risks associated with the derivatives trading so that investors can take a conscious decision to trade in derivatives. 4. The investor could also demand the trade confirmation slip with his ID in support of the contract note. 3. These measures are as follows: 1. However. In the derivative markets all money paid by the Investor towards margins on all open positions is kept in trust with the Clearing House /Clearing Corporation and in the event of default of the Trading or Clearing Member the amounts paid by the client towards margins are segregated and not utilised towards the default of the member. if any. 13. This will protect him from the risk of price favour. The Clearing Corporation/House shall have a separate Trade Guarantee Fund for the trades executed on Derivative Exchange/Segment. The Clearing Corporation/House shall hold the clients’ margin money in trust for the client purposes only and should not allow its diversion for any other purpose. SEBI has specified measures to enhance protection of the rights of investors in the Derivative Market. losses suffered by the Investor. Investor’s money has to be kept separate at all levels and is permitted to be used only against the liability of the Investor and is not available to the trading member or clearing member or even any other investor. in the event of a default of a member. on settled/closed out position are compensated from the Investor Protection . if any. Investor would get the contract note duly time stamped for receipt of the order and execution of the order. 2.

Today Indiabull Securities limited is India’s leading capital markets company with AllIndia Presence and an extensive client base.Fund. the National Securities Depository Ltd and Central Depository Services (India) Limited. Indiabulls group is leading financial services and Real estate player with a pan India presence. To help the clients better Indiabull Securities limited has located their offices in major towns. and placed highly qualified and experienced financial experts to man them. as per the rules. bye-laws and regulations of the derivative segment of the exchanges. Indiabulls Securities is the first and only brokerage house in India to be assigned the highest rating BQ – 1 by CRISIL. Over the years. BSE & Luxembourg stock exchange. convenience and reliability in all our products ranging from securities trading to customers finance. A team of dynamic finance professionals with decades of experience leads them. mortgages to real estates development. Indiabulls Securities Ltd is listed on NSE. These professionals . COMPANY PROFILE Indiabulls security limited is a premier brokerage house in India on the fast growth trackIndiabulls Securities Limited is part of the indiabulls group of companies.. ISL offer ease. the company has grown from strength to strength to become a major player in India's financial services sector. Started functioning in the stock market in 2000.

Indiabulls Real Estate company pvt ltd bought Elphinstone mill in Lower Parel. the 3 founders incorporated Indiabulls Financial Services and made it as the flagship company.share a common vision not only to transform the company into a highly professional organization. By 2003. their friend Saurabh Mittal also joined them. Indiabulls Financial Services started its financing business with consumer loans. In late 2004. when e-commerce was just about starting in India. Mittal & Mr Harish Fabiani. Indiabulls Financial Services went public with an IPO at Rs 19 a share.N. In late 2000. Indiabulls Properties Private Ltd. the company embarked on its journey to build one of the first online platforms in India for offering internet brokerage services. HISTORY In middle of 1999. In mid 2000. A few months later. A Few months later. Sameer Gehlaut and his close IIT Delhi friend Rajiv Rattan got together and bought a defunct securities company with a NSE membership and started offering brokerage services . Indiabulls Financial Services received venture capital funding from Mr L. Indiabulls securities had established a strong pan India presence and client base through its offices and on the internet. participated in government auction of Jupiter Mills. . Mumbai. Indiabulls Properties private Ltd won the mill in auction and that purchase started Indiabulls real estate business. another textile mill auctioned by NTC. By December 1999. Indiabulls Securities. but also make their clients earn the maximum from their hard-earned money. a subsidiary of Indiabulls Financial Services. a defunct 11 acre textile mill owned by NTC in Lower Parel. In January 2000. a subsidiary of Indiabulls Financial Services started offering online brokerage services and simultaneously opened physical offices across India. In March 2005. In September 2004.

Indiabulls Real Estate incorporated a 100% subsidiary. Real Estate and Infrastructure. Indiabulls Financial Services demerged the real estate business under Indiabulls Real Estate and each shareholder of Indiabulls Financial Services received additional share of Indiabulls Real Estate through the demerger. Today. In year 2007.796 Crore & has a strong presence in important sectors like financial services. The company has been assigned 'BBB' rating.919 Crore.500 Crore. Indiabulls Financial Services also demerged Indiabulls Securities and each shareholder of Indiabulls Financial Services also received a share of Indiabulls Securities. Indiabulls Power went public in September 2009. Indiabulls Group has a networth of Rs 16. . Indiabulls Power. power & real estate through independently listed companies and Indiabulls Group continues its journey of building businesses with strong cash flows. Indiabulls Group companies are listed in Indian and overseas financial markets.844 Crore and the total planned capital expenditure of the Group by 2013-14 is Rs 35. BUSINESSES Indiabulls Group is one of the country's leading business houses with business interests in Power. The net worth of Indiabulls Power is Rs 3. The Net worth of the Group is Rs 16. The first unit is expected to go on stream in May 2012. Financial Services.With real estate business gaining size. The company has a total capital expenditure of Rs 27. Indiabulls Power is currently developing Thermal Power Projects with an aggregate capacity of 5400 MW. Subsequently. to build power plants and started work on building Nashik & Amrawati thermal power plants.000 Crore.

Indiabulls Securities is a pioneer of on-line securities trading in India. equity research services and IPO distribution to its clients and offers commodities trading through a separate company.000 Crore in government auctions alone. Indiabulls Securities has been assigned the highest rating BQ-1 by CRISIL. The company has disbursed loans over Rs 50.505 Crore and has purchased prime land. Special Economic Zones (SEZs) and infrastructure development. .000 customers till date. Indiabulls Financial Services ranks amongst the top few companies both in terms of net worth and capital adequacy. integrated townships.00. malls. Indiabulls Financial Services has been assigned ‘AA+’ rating and has presence in over 87 cities and towns with a total branch network of 170 branches. mostly in the metros and other Tier 1 cities worth Rs 4. Indiabulls Real Estate partnered with Farallon Capital Management LLC of USA to bring the first FDI into real estate in the country. Indiabulls Securities is one of India's leading capital markets companies providing securities broking and advisory services. commercial office complexes. The company has been assigned 'A+' rating. residential and retail spaces. hotels. Indiabulls Real Estate is currently developing 64. Indiabulls Real Estate is among India's top Real Estate companies with development projects spread across residential complexes.32 million sqft into premium quality.792 Crore. Commercial Vehicle Loans and Secured SME Loans. Indiabulls Securities also provides depository services. Amongst its financial services and banking peers. These services are provided both through on-line and off-line distribution channels. Indiabulls Securities’ in-house trading platform is one of the fastest and most efficient trading platforms in the country. high-end commercial. The company has a networth of Rs 7.661 crore with an asset book of Rs 23.Indiabulls Financial Services is one of India’s leading non-banking finance companies providing Home Loans. The company has a net worth of Rs 4.000 Crore to over 3.

“Creating a world of smart investors”. Products or Services: • • • • • • • Equity and Derivatives Depository Services Margin Trading Equity Analysis IPO Financing Loan Against Shares Trading Platforms . They are providing through indiabulls Equity Research Commodities o o .Power Indiabulls (PIB) . to benefit the investors.Browser Based Indiabulls Securities Limited Indiabulls Securities Limited is a big player financial market that has put the brokerage business on fast growth track over the years. It aims to provide all types of financial services to its clients at one place to save them from going from place to place to meet their investment needs.Vision: Indiabulls Securities Limited was born out of a vision to explore the immense investment opportunities in the Indian financial market. The vision of the Indiabulls Securities Limited is to be a Financial Super Market.

Labh Singh Sitara Mr.Aishwarya Katoch Mr.Prem Prakash Mirdha Mr.Ashok Sharma Mr.Divyesh B Shah Director Director Director Director Director Director .Karan Singh Mr.o o Internet Trading NRI Online Trading Competitors: Major competitors for India bulls Securities Limited Include: ICICI Direct Share khan India infoline Limited Indian Angels Mothilal Oswol o o o o o Indiabulls Securities Ltd. : Board of Directors 1 2 3 4 5 6 Brig.

Securities Limited SENIOR VICE PRESIDENT BRANCH MANAGER/ Support System Sales Hierarchy & Branch Structure Securities Limited SENIOR VICE PRESIDENT BRANCH MANAGER/ Support System Back office Executive Local Compliance Officer Sales Functions RM/SRM Dealer Sales Current Position of the Company ARM .

the company earned an after tax profit of Rs. ISL.69 45.On March 2011.22 Paid-up (No's) 17834099 253426989 253426989 229940648 231112511 Shares Face Value Paid-up (Rs) 10 2 2 2 2 Capital 17. 37.83 50. : Capital Structure From To Class of Auth. 58.75 crores as compared to Rs.99 46.99 46. which is into capital market operations generate a volume of Rs 40000 through commodity futures transactions.22 Crores equity.00 .00 2010 2011 Equity Share 100.51crores during the previous year.00 2009 2010 Equity Share 100.45 the company raised its funds through the issue 46.69 45.83 50. Issued Capital 17.69 50.00 2007 2008 Equity Share 100.00 2008 2009 Equity Share 100. Indiabulls Securities Ltd.69 50. The total revenue earned by the company in 2011 march is Rs 325.22 Shares Capital 2006 2007 Equity Share 19.

73 0. Of % Holding 0.21 13.30 4188982 0 0 335671 50146467 88659546 231112511 1.13 21.15 0 395254 0.15 21.52 100.Indiabulls Securities Ltd.00 Shares PROMOTER'S HOLDING Foreign Promoters 0 Indian Promoters 68713425 Person Acting in 0 Concert Sub Total 68713425 NON PROMOTER'S HOLDING Institutional Investors Mutual Funds and UTI 0 Banks Fin.73 0.00 0 68713425 0 Holding Shares 0.36 100.00 0.00 No. Inst.73 68713425 29.81 0.00 0.73 0.87 14.00 29.17 0 382320 0. and 345724 Insurance FII's 23247349 Sub Total 23593073 Other Investors Private Corporate 30868583 Bodies NRI's/OCB's/Foreign Others GDR/ADR Directors/Employees Government Others Sub Total General Public GRAND TOTAL Holding Shares 0.70 38.03 0.61 13.00 No.00 0.73 0.00 4688982 0 0 300189 50527145 87349578 231112511 2.17 10.80 100. : Share Holding Share Holding Pattern 30/09/2011 as on : FaceValue Share Holder 30/06/2011 31/03/2011 2.86 37.73 68713425 29.38 14664216 6.06 10. Of % 2.00 0.44 10.00 0.00 0.20 22.70 10.35 14556410 6.88 36.36 24732792 25115112 33163095 10.00 .00 0.00 29. Of % 2.00 No.00 4688982 0 0 465950 52874437 84409537 231112511 2.03 0.00 29.00 0.00 0.35 14753231 6.36 24127109 24522363 30873758 10.00 0 68713425 0 29.

The primary market is the market for new issues where resources get mobilized either through public issues or through private placements. is one of the oldest stock exchanges in the world. S&P has ranked the Indian market 17 th in terms of market capitalization on a global scale. . At the end of 2003. The Bombay Stock Exchange. the Indian stock market too is inextricably entwined in the business fabric of our country.Indian stock Market: An Introduction The Indian securities market has a long history going back 130 years. the iconic trademark of our securities market. Over the years. Needless to mention. Stock markets have a stellar role to play in the economic growth of every country. having been set up in 1875. this exchange was the brainchild of a group of enterprising brokers. A pioneer in organized stock broking activity. The OTC markets are informal markets where transactions are negotiated over the telephone and/or computer network of dealers. This market is further divided into the over the counter (OTC) market and the exchange traded market . the Indian securities market has evolved gradually to become one of the Asia’s most modern and efficient markets. The Indian securities market has two fundamental segments – the primary market and the secondary market . 16 th in terms of turnover and 6 th in terms of turnover ratio. The secondary market provides liquidity to participant’s holdings by enabling them to buy and sell securities according to their risk return assessments. setting international standards in technology and settlement systems. India has the highest number of listed securities in the world surpassing even the US which is the world’s largest equity market in terms of market capitalization.

(IISL).000 companies are listed on Indian stock exchanges. rolling settlement and . dematerialization and electronic transfer of securities. Indian stock market is today an important source of financing for both the industry as well as the government. India has the third largest investor base in the world after the USA and Japan. Indian Capital Market The Indian capital markets have witnessed a transformation over the last decade. India now finds its place amongst some of the most sophisticated and largest markets of the world. market-determined prices and allocation of resources. It is an index of 50 stocks representing 24 sectors of the economy. The S&P CNX Nifty is an S&P endorsed index. With over 20 million shareholders. It registers the pulse of the Indian markets and is indeed the most publicized barometer of the economy. Over 9. The Indian capital market is significant in terms of the degree of development. owned and managed by the Indian Index Services Ltd. screen-based nation-wide trading. Reforms. volume of trading and its tremendous growth potential. particularly the establishment and empowerment of SEBI. Over the past few years.The two most tracked indices in India are the BSE Sensex and the S&P CNX Nifty. the capital markets have also witnessed substantial reforms in regulation and supervision. the Sensex is a basket of 30 constituent stocks of companies that figure in the top 100 in terms of market capitalization. Apart from being a popular avenue of investments. Originally complied in 1986.

This consolidation is expected to continue. with most of the consolidation coming in the last 2 years. an online multi-commodity exchange for trading of various commodities. This is particularly evident in the non banking financial services sector. The year 2003. such as brokerage industry. and provide an opportunity for the top broker to own 15% market share or more over the next 3-4 years. the market share of the top 5 brokers has increased from 6% (1996-97) to 15% (December. long settlement cycles with rolling settlement. including the OTCEI for small and new companies and the NSE. 2005). which was set up as a model exchange to provide nation-wide services to investors. Replacing the flexible. but often exploited. Over the last 7 years. The entry of new players has resulted in a more sophisticated range of financial services being offered to corporate and retail customers which has compelled the existing players to upgrade their product offerings and distribution channels. The consolidation in the online business is even greater. There are 23 recognized stock exchanges in India. Key initiatives in recent years include:  Depository and share de-materialization process have enhanced the efficiency of the transaction cycle. . to bring about transparency.derivatives trading have greatly improved both the regulatory framework and efficiency of trading and settlement. with the top 5 players owning more than 90% of the market. where innovative products combined with new delivery methods have helped the sector achieve high growth rates. During 2002-03 the NSE and the BSE were ranked third and sixth respectively amongst all exchanges in the world with respect to the number of transactions. also witnessed setting up of the NCDEX.

index options. has a fully automated screen based system (NEAT and BOLD) that operates in the wholesale debt market segment as well as the capital market segment. This allows customers to enjoy a greater bargaining power. NSE. which in the recent past has accounted for the largest trading volumes. Retail investors often lack the knowledge and expertise in the financial sector that calls them Low to Product approach the broking Proves houses. Porters Five Forces Analysis Buyer Power  Lack of Expertise Curtails Bargaining Power. . IT driven stock exchanges (NSE and BSE) with a national presence (for the benefit of investors across locations) and other initiatives to enhance the quality of financial disclosures by the listed companies.  Many new instruments have been introduced in the markets. derivatives and options and futures in select stocks. including index futures. Empowering SEBI with powers to impose higher penalties and establish itself as an independent regulator with adequate statutory powers. Beneficial. Differentiation The retail broking services provided by the various companies are homogeneous with very low product differentiation.

dematerialization etc are strengthening the retail brokerage market and attracting foreign companies to enter the Indian industry.Supplier Increased Dependence on Power IPO’s There is a growing dependence of corporate on broking houses with the rising number of IPO’s coming to the market. Threat  Entry of of New Foreign Entrants Players New forms of trading including T+2 settlement system. Threat of Substitutes  Alternative Investment Options-Various alternative forms of investment including fixed deposits with banks and post offices etc act as substitutes to retail broking products and services . Intensity of Competition  Move towards consolidation-Lot of brokerage companies are moving towards consolidation with the smaller ones becoming either franchisees for the larger brokers or closing operations. Increased Focus of Banks in Retail Broking-Various foreign banks like ABN Amro and others are planning to enter the Indian retail brokerage industry. Online Trading Competes with Traditional Brokerage-There is an increasing demand for online trading due to consumer’s growing preference for internet as compared to approaching the brokers.

555 FY 06 – Rs 6.405 Brokerage Rs 2.Growth Drivers • Constantly tapping new business areas to drive growth    IPO financing Consumer loans to a large lower and middle class client base Mortgages & Loans against Property Financial Overview of the Company a) Financial Services Revenue Contribution Other Rs 1.8 b) Increasing Market share of Indiabulls in NSE trading volumes .135 million 3.175 19% 42% 39% Financing Rs 2.

44.498 79.000 4.35.000 2.1% 1.50.50.4% 1.00.000 Increasing Number of Customers 3.50.000 2.5% 21.324 1.7% 22.9% 2.50.9% 3.455 30.3% 18.000 50.Increasing Market share of Indiabulls in NSE trading volumes 35% 30% 25% 20% 15% 10% 5% 0% FY2002 FY2003 Share in Online Trading (1) Source: NSE data from NSE website (Equity Segment) 30.000 1.78.000 .08.932 1.00.000 3.000 1.5% (1 FY2004 FY2005 ) FY2006 Share in Total Trading c) Growing Customer Base 5.2% 5.000 4.000 4.000 0 37681 38047 38412 38504 Sep -05 Dec -05 Mar -06 2007 Jan 16.00.000 2.50.800 1.00.00.8% 17.

684.0612 Intraday Buy Sell Futures Buy Sell 0.000 3.000 2.d) High Revenue Growth Rs mm 7.5 1.5 ): 06 3 (0 % R G 184 A C 719.1 0.24% on 0.1 0.01224 .1 FY04 FY05 Financing FY06 Insurance.5 0.7 6131.1 0.1 0.01224 0.000 1.5 0.01224 0.000 5.000 0 FY03 Brokerage 266. Mutual Funds & Brokerage and Tax break up Remarks Delivery Buy Brokerage Service tax(@12.0612 Sell 0.000 4.000 6.01224 0.

018 0.125 0.715424 0.025 0.132485 0.018 0 0.002245 0.011224 0.018 0.002245 0.002245 0.132485 0.018 0.125 0.149485 Products and Services The products of Indiabulls are :• • • • • • • Trading Platform for Equity and Derivatives Depository Services Commodities Equity Analysis IPO Financing Loan Against Shares Margin Trading Indiabulls offers • • • Broker assisted trade execution Automated online investing Access to all IPO’s .017 0.715424 0.brokerage) Security transaction tax (STT) Turnover Tax (T oT) Stamp duty Total 0.018 0 0.018 0.011224 0.157485 0.002245 0.

BSE. Derivatives and commodities instruments listed on NSE.• Sales of Equity. NCDEX and MCX There are 3 mediums of using / accessing Indiabulls Trading Services. Depository Participant with:  Central Depository Services (India) Limited [CDSL]  National Securities Depository Limited [NSDL] • Execute trades through Indiabulls Securities and settle these transactions through Indiabulls Depository services. RESEARCH DESIGN TITLE A study on “Derivatives as a tool for hedging.” . • Click  Power Indiabulls (PIB)  Indiabulls Signature Account • • Call Indiabulls Visit the nearest branch Depository Services • • Value added Services for seamless delivery.

To study the various risk associated with derivatives. As a result this leads to high volatility in the stock market. social. To study the financial derivatives as a hedging tool in the stock market . NEEDS FOR OR IMPORTANCE OF THE STUDY Business concerns and corporate investors worldwide are using various f i n a n c i a l instruments to hedge the risks. This study attempts to provide the derivatives as a hedging tool to reduce the various risks in the stock market. OBJECTIVES OF THE RESEARCH To study the trading practices in the derivative market. This may be due to lack of information regarding trading practices in stock exchange. Derivatives effectively to reduce substantial loss have proved that these instruments can effectively reduce risk. It is prone to frequent changes in the market due to political.STATEMENT OF PROBLEM India is a developing country. economic changes. The players in the Indian stock market are prone to various kinds of risks and level of risk.

cash market. Then the data has to be calculated as the percent change for each day to another for the benchmark index and for the instrument for which beta is being calculated. Once the data is normalized begin with the calculation of the relationship of the two instruments. First. futures. Excel's slope function takes two arguments: • • the array of dependent variables (daily percent change of instrument) the array of independent variables and returns the rate of change along the regression line (daily percent change of the benchmark index) FORMULA USING BETA . There are various types of derivatives instruments like commodities. Excel's slope function lets you calculate this relationship.SCOPE OF THE STUDY This study is done to know the derivative markets in India. Statistical tools for analysis  Beta Analysis Beta is calculated using historical data for the benchmark index and historical data for the same period for the instrument for which you are trying to calculate the beta. the data has to be retrieved then second step is to normalize the data by calculating the percent change from one period to another. stock futures but in this study mainly it is concentrated on the stock futures for finding the risk involved in the stock futures.

The data collected from websites were used to analyze the strategies and for calculations. observation on the price movement of derivative market for the purpose of analysis of data were collected from the official websites of National Stock e x c h a n g e a n d D e r i v a t i v e s I n d i a ( www.com& derivative sindia. and beta formula for finding the analysis LIMITATIONS OF THE RESEARCH . magazines.nseindia. PLAN OF ANALYSIS In this study I have used figures. Market movements were observed for one month with Nifty Index Futures. and journals and also from websites.com) Theobservation period was from 1 st November to 30th November. charts. The secondary data are collected from reports. tables.Beta = Covariance of stock .nifty index -------------------------------------------Variance of Nifty index DATA COLLECTION The report is prepared by using secondary data.

A)Availability of data because the data used for calculating beta is only one month B)In the stock market various options are available like commodities. cash market. DATA COLLECTION AND ANALYSIS .options except from this I have used stock futures for calculation.