Derivatives
Fifth Trimester-
Session-1
Introduction to Derivatives
Prof Bhaskar Reddy
Reddi.bhaskar@gmail.com
Session-1 Introduction to Derivatives
Session Details
1.1 Introduction to derivatives
1.2 Types of Derivatives
1.3 Factors for growth in derivatives
1.4 Derivatives in India- Prospects and
Policies
1.5 Critiques of Derivatives
1.6 Summary
Session-1 Introduction to Derivatives
1.1 Introduction to derivatives
Derivatives are financial Instrument or
contracts whose value depends upon the
underlying asset.
So what do you mean by Underlying asset?
Agricultural commodity,Shares, T-bills
Bonds,currencies,Interest rates or
anything
Origin of derivatives – When?
Session-1 Introduction to Derivatives
1.2 Types of derivatives
Forward, Forward rate agreements
Futures
Options
Swaps
Credit Derivatives
Session-1 Introduction to Derivatives
1.2 Types of derivatives
Forward:
Transactions involving Delivery of an asset at a
Future date
Forward rate agreements :
Agreement between parties for loan taken
notionally at a specified interest rate
Session-1 Introduction to Derivatives
1.2 Types of derivatives
Futures;
An Agreement to buy or sell an asset
at a certain time in the future at a
certain price
Session-1 Introduction to Derivatives
1.2 Types of derivatives
Options:
Contracts Between option writer (seller) and
buyers ,Which obligate the seller to deliver and
entitle the buyer without obligation to buy stated
quantities of asset at future date at today’s
contracted prices
Session-1 Introduction to Derivatives
1.2 Types of derivatives
Swaps
Contractual Agreement between two counter
parties to exchange a series of cash flows for
an agreed period of time
Session-1 Introduction to Derivatives
1.3 Factors for growth in derivatives
Increased volatility in the World Economy
Technological changes
Increasing professionalism among market
player
Political developments
Session-1 Introduction to Derivatives
1.4 Derivatives in India- Prospects and
Policies
Introduced in India In June 2000
Option and futures in 2001
Separate membership for Derivatives
markets
Interest rate derivatives launched in
June 2003
Session-1 Introduction to Derivatives
1.5 Critiques of Derivatives
Speculative in nature
Increase risk
Instability of financial systtem
Session-1 Introduction to Derivatives
1.6 Summary