DERIVATIVES

SUMMARY
 Introduction
 Meaning
 Definition
 Characteristics
Types of derivatives
Uses of derivatives
 Shortcomings/ limitations
INTRODUCTION
 Derivatives trading started in india in
june 2000 after SEBI granted the final
approval. It has given a new option of
investment in addition to money market
and capital market. NSE and BSE were
permitted to trade in derivatives. The first
derivative was “index future” in which
trading was approved by SEBI. In nov.
2001, Future contracts on individual
stocks were launched.
MEANING OF DERIVATIVE
 Derivative is a product whose price is
dependent upon or derieved from one or
more underlying asset, index and
reference rate.
 The underlying asset may be equity, forex,
commodity, or any other asset.
 The value of derivative and value of
underlying assets have positive
relationship.
DEFINITION
 According to M.Y. Khan, “Derivatives are
risk management tools. They have no
independent value and their value is
entirely derieved from the value of a cash
asset.”
CHARACTERISTICS
1. WRITTEN CONTRACT
2. MATURITY DATE
3. VALUE
4. TYPES OF DERIVATIVES
5. LOW COST AND RISK
6. SETTLEMENT
TYPES OF DERIVATIVES
1. FUTURES
2. FORWARDS
3. OPTIONS
4. SWAPS
5. WARRANTS
6. CONVERTIBLES
7. CREDIT DERIVATIVES
USES OF DERIVATIVES
1) RISK MANAGEMENT
2) REDUCING TRANSACTION
COST
3) ENCHANCES LIQUIDITY
4) INDICATION OF FUTURE
RENDS
5) SWEETENER
SHORTCOMING / LIMITATIONS
1) LEVERAGE
2) SPECULATIVE NATURE
3) INCREASE RISK
4) REGULATORY MEASURES
5) COMPLEX