Derivatives Market in India ..Future???

Rajyedu

New member
The emergence of the market for derivatives products, most notable forwards, futures, options and swaps can be traced back to the willingness of risk-averse economic agents to guard themselves against uncertainties arising out of fluctuations in asset prices. By their very nature, the financial markets can be subject to a very high degree of volatility. Through the use of derivative products, it is possible to partially or fully transfer price risks by locking-in asset prices. As instruments of risk management, derivatives products generally do not influence the fluctuations in the underlying asset prices. However, by locking-in asset prices, derivatives products minimize the impact of fluctuations in asset prices on the profitability and cash flow situation of risk-averse investors.

Factors generally attributed as the major driving force behind growth of financial derivatives are:

(a) Increased Volatility in asset prices in financial markets,
(b) Increased integration of national financial markets with the international markets,
(c) Marked improvement in communication facilities and sharp decline in their costs,
(d) Development of more sophisticated risk management tools, providing economic agents a wider choice of risk management strategies, and
(e) Innovations in the derivatives markets, which optimally combine the risks and returns over a large number of financial assets, leading to higher returns, reduced risk as well as transaction costs as compared to individual financial assets.
The need for a derivatives market

The derivatives market performs a number of economic functions:

1. They help in transferring risks from risk adverse people to risk oriented people
2. They help in the discovery of future as well as current prices
3. They catalyze entrepreneurial activity
4. They increase the volume traded in markets because of participation of risk adverse people in greater numbers
5. They increase savings and investment in the long run
 

kartik

Kartik Raichura
Staff member
the derivatives future in india is very optimistic because every investor wants to reduce his risk by hedging. More so there is speculation of a boom in the commodities derivative market .. keep your fingers crossed.. the future is risk management, the future is derivatives...
 

rahulsinghpgdm

New member
man everything said above is cut copy paste job from ncfm derivative module if someone is really interested in vivid indian scenario of derivative pick up the book by susan thomas it really describes the ground reality thanks for the post
 

rahulsinghpgdm

New member
a dyanamic question option put give the buyer right but not the obligation to sell asset at future date hw buyer can sell?
 

rosaryxavier

New member
man everything said above is cut copy paste job from ncfm derivative module if someone is really interested in vivid indian scenario of derivative pick up the book by susan thomas it really describes the ground reality thanks for the post

hi friend.. can u explain the crux of that book
 

goldie1234

New member
Financial markets are, by nature, extremely volatile and hence the risk factor is an important concern for financial agents. To reduce this risk, the concept of derivatives comes into the picture. Derivatives are products whose values are derived from one or morebasic variables called bases. These bases can be underlying assets (for example forex, equity, etc), bases or reference rates. For example, wheat farmers may wish to sell their harvest at a future date to eliminate the risk of a change in prices by that date. The transaction in this case would be the derivative, while the spot price of wheat would be the underlying asset. Development of exchange-traded derivatives Derivatives have probably been around for as long as people have been trading with oneanother. Forward contracting dates back at least to the 12th century, and may well have been around before then. Merchants entered into contracts with one another for future delivery of specified amount of commodities at specified price. A primary motivation forpre-arranging a buyer or seller for a stock of commodities in early forward contracts was to lessen the possibility that large swings would inhibit marketing the commodity after a harvest. The need for a derivatives market The derivatives market performs a number of economic functions: 1. They help in transferring risks from risk averse people to risk oriented people 2. They help in the discovery of future as well as current prices 3. They catalyze entrepreneurial activity 4. They increase the volume traded in markets because of participation of risk averse people in greater numbers 5. They increase savings and investment in the long run The participants in a derivatives market • Hedgers use futures or options markets to reduce or eliminate the risk associatedwith price of an asset. • Speculators use futures and options contracts to get extra leverage in betting on future movements in the price of an asset. They can increase both the potential gains and potential losses by usage of derivatives in a speculative venture. • Arbitrageurs are in business to take advantage of a discrepancy between prices in two different markets.
 
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