Financial Derivatives

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Presentation Transcript

FINANCIAL DERIVATIVES : 

FINANCIAL DERIVATIVES PRESENTED BY JAYA KANESH R R.BUPATHY & CO., CHARTERED ACCOUNTANTS

DERIVIATIVES : 

DERIVIATIVES A Derivative is a product whose value is derived from the value of one or more underlying asset. Eg: Equity Forex Commodity Currency or Any Other Asset

MARKET INDEX : 

MARKET INDEX An Index is a number which measures the change in a set of values over a period of time The base value of Nifty on the start date of November 3, 1995 is 1000 Points Every stock price moves for 2 Major reasons News about the Company News about the Nation Nifty is a combination of 50 stocks and sensex is of 30

Types of Indexes : 

Types of Indexes Price Weighted Index Weight Proportional to its stock price Not used in INDIA Market Capitalization weighted index Current Market Capitalization Index= ------------------------------------ X Base Value Base Market Capitalization Free Float (Excluding Promoters Shares) – BSE & NSE Full Float (Including Promoters Shares)

Types of Derivatives : 

Types of Derivatives

Forward Contract : 

Forward Contract

Characteristics : 

Characteristics Fully Customized Contract No Involvement of Stock Exchange Mostly OTC Actual Delivery of Asset takes Place Counter Party Risk

Limitations of Forward Market : 

Limitations of Forward Market Lack of Centralization No Hard and Fast Rules No Involvement of Stock Exchange Too much Flexibility makes the Contract Non-Tradable Illiquidity Both the parties have to wait till the time of maturity No one can come out of the contract Counterparty Risk Default by one party makes the other party to suffer

Future Contracts : 

Future Contracts

Futures v/s Forwards : 

Futures v/s Forwards

Future Terminology : 

Future Terminology Spot Price Future Price Contract cycle Expiry date Contract size Initial margin Marking to market Maintenance of margin

Future Payoffs (Profit) : 

Future Payoffs (Profit) Long Futures

Future Payoffs (Profit) : 

Future Payoffs (Profit) Short Futures

Application of Futures : 

Application of Futures Hedging – A Risk Management Tool Speculation Arbitrage

Option Contracts : 

Option Contracts

Options Payoffs : 

Options Payoffs

Swap : 

Swap Similar to Phone SWAP Especially for Banks Not Followed in India

THANK YOU : 

THANK YOU FOR MORE INFO www.jaiganeshca.blogspot.com

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