A derivative is a generic term for specific types of investments from which payoffs over time are derived from the performance of assets (such as commodities, shares or bonds), interest rates, exchange rates, or indices (such as a stock market index, etc). This performance can determine both the amount and the timing of the payoffs. The diverse range of potential underlying assets and payoff alternatives leads to a huge range of derivatives contracts available to be traded in the market. Today there many instruments available in the market which always optimize risk and tries give high returns and derivatives are which are gearing more attentions. The main types of derivatives are futures, forwards, options and swaps. There is tremendous growth in the use derivatives have found in the recent years; it is more than the equity segment because it is features, which help in hedging the risk. The growth in derivative has run in parallel with the increasing direct reliance of the companies on the capital for the long –term sources funds. Emerging in the 1970s, derivatives markets grew from strength to strength. The trading volumes nearly doubled in every three years. They become so ubiquitous that, now, one cannot think of the existence of financial markets without Derivatives.
[...] Derivatives are specialized contracts, which are employed for a variety of purposes including reduction of funding costs by borrowers enhancing the yield on assets modifying the payment structure of asset to correspond investors market view etc however the most important use of derivatives is in transferring market risk called hedging which is a protection against losses resulting from unforeseen price are volatility changes. Types of Derivatives The most commonly used Derivative contracts are forwards, futures and options. Here a brief note about various Derivative contracts that have come to be used are given - Forwards: A forward contract is a customized contract between two entities, where settlement takes place on a specific date in the future at today's pre-agreed price. [...]
[...] If the portfolio is not performing well investors can get advice on restructuring it Best prices: Online trading has resulted in a phenomenal reduction in the transaction cost for the investor as online trading ensures a matching of buying and selling orders within an ENC without the intervention of market markets or traditional stock exchanges Liquidity: The liquidity option available for investors has been considerably stretched as the online trading offers 24 hours trading facilities Audit trial: Online trading has imparted greater transparency which is subject to scrutiny, by providing an audit trial for an investor right at his desk, which earlier, used to stop at his brokers trading terminal. [...]
[...] This can be done using a single keystroke using the NEAT software Buy index futures of an equal value at a future date A few days later, you will receive money and have to make delivery of the 50 shares Invest this money at the risk less interest rate On the date that the futures expire, at 3:15 PM, put in 50 orders (using NEAT again) to buy the entire NSE-50 portfolio A few days later, you will need to pay in the money and get back your shares. [...]
[...] If the Nifty is below 1260, the put will be exercised on you Either way, you end up buying the index at Rs The riskless profit on the transaction works out to be Rs Case Suppose Nifty stands at 1265, the risk-free rate of interest is 12% per annum, the price of a three month Nifty 1260 call is Rs.96 and the price of a three month Nifty 1260 put is In this case, we can see that X S C = T 1316.50 [...]
[...] 2001 June Introduction of interest rate futures 2003 DERIVATIVES PRODUCT TRADED IN INDIA Derivative products that available for are as follows In the equity and derivatives market an individual and institutional are allowed to play there restrictions imposed by SEBI which do not allow Banks and Financial institution to play in these market, where in currency swaps the banks and other financial institution play a vital role as it allows them to hedge their risk against foreign currency. The warrants are: Growth The equity derivative market turnover stands more than the cash market it is a phenomenal growth with in short period with many restrictions imposed by SEBI which restrict the entering of banks and financial institutions in this market. [...]
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