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Derivatives-An Innovative Tool For Risk Minimisation: Submitted To - Prof. A. S. Ramnarayan

1) The document discusses derivatives as innovative tools for risk minimization. It explains that derivatives were developed to help manage financial risks from changes in interest rates, exchange rates, and stock prices. 2) Various derivative products are discussed, including forwards, futures, and options. The rationale for studying these tools is explained, including how they allow for risk transfer and speculation. 3) The objectives and methodology of a proposed research study on derivatives are outlined, focusing on examining how derivatives can minimize investor risk and provide education on key tools and techniques.

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Nitesh Sarkar
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59 views6 pages

Derivatives-An Innovative Tool For Risk Minimisation: Submitted To - Prof. A. S. Ramnarayan

1) The document discusses derivatives as innovative tools for risk minimization. It explains that derivatives were developed to help manage financial risks from changes in interest rates, exchange rates, and stock prices. 2) Various derivative products are discussed, including forwards, futures, and options. The rationale for studying these tools is explained, including how they allow for risk transfer and speculation. 3) The objectives and methodology of a proposed research study on derivatives are outlined, focusing on examining how derivatives can minimize investor risk and provide education on key tools and techniques.

Uploaded by

Nitesh Sarkar
Copyright
© Attribution Non-Commercial (BY-NC)
We take content rights seriously. If you suspect this is your content, claim it here.
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DERIVATIVES- AN INNOVATIVE TOOL FOR

RISK MINIMISATION

SUBMITTED TO- PROF. A. S. RAMNARAYAN

SUBMITTED BY- NITESH SARKAR

ROLL NO- PGPM/2K9/C25

ASIA-PACIFIC INSTITUTE OF MANAGEMENT STUDIES

NEW DELHI
INTRODUCTION

The past decade has witnessed the multiple growths in the volume of international trade
and business due to the wave of globalization and liberalization all over the world. As a result,
the demand for the international money and financial instruments increased significantly at the
global level. In this respect, changes in the interest rates, exchange rates and stock market
process at the different financial markets have increased the financial risks to the corporate
world. Adverse changes have even threatened the very survival of the business world. It is,
therefore, to manage such risks; the new financial instruments have been developed in the
financial markets, which are also popularly known as financial derivatives.

This basic purpose of these instruments is to provide commitments to prices for future
dates for giving protection against adverse movements in future prices, in order to reduce the
extent of financial risks. Not only this, they also provide opportunities to earn profit for those
persons who are ready to go for higher risks. In other words, these instruments, indeed, facilitate
to transfer the risks from those who wish to avoid it to those who are willing to accept the same.

Today, the financial derivatives have become increasingly popular and most commonly
used in the world of finance. This has grown with so phenomenal speed all over the world that
now it is called as the derivatives revolution.

Derivative is a product whose value is derived from the value of one or more basic
variables, called bases (underlying asset, index, or reference rate), in a contractual manner. The
underlying asset can be equity, forex, commodity or any other asset. 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. Such a transaction is an example of a derivative. The price of this derivative is driven by
the spot price of wheat which is the "underlying".

Derivative products initially emerged as hedging devices against fluctuations in


commodity prices. In recent years, the market for financial derivatives has grown tremendously
in terms of variety of instruments available, their complexity and also turnover
Types of Derivative Product

TITLE OF THE PROJECT


The title includes the comparative study of the various tools and techniques required for the
hedging the risks in a derivative trading. These practical tools are:

 Forwards
 Futures
 Options

These would be explained with the help of the practical examples.

RATIONALE OF THE STUDY


Participants in derivative market are

 Exchange, trading members, clearing members.


 Hedgers, arbitrageurs, speculators.
 Clearing, clearing bank.
 Financial institutions.
 Stock lenders and borrowers.
Now the main importance of the study is to provide these participants an opportunity to:
(1) Reduction of borrowing cost.
(2) Enhancing the yield on assets.
(3) Modifying the payment structure of assets to correspond to investor market view.
(4) No physical delivery of share certificate so reduction in cost by stamp duty.
(5) Increase in hedger, speculator and arbitrageurs.
(6) It does not totally eliminate speculation, which is basic need of Indian investors.

OBJECTIVE OF THE STUDY


How Derivative leads to minimize the risk of the investors and also to give investors a
fair idea about the derivative tools and techniques.

DERIVATIVES- AN INNOVATIVE TOOL FOR RISK MINIMISATION

RESEARCH METHODOLOGY
Sampling Procedure
The small representative selected out of large population is selected at random is called
sample. Well-selected sample may reflect fairly, accurately the characteristic of population. The
chief aim of sampling is to make an inference about unknown parameters from a measurable
sample statistics. The sample size was 35 for 'broker's perceptions' and 20 in case of 'investor's
perception.

Sources of Data:
The sources of data include primary and secondary data sources.

 Primary Sources:
Primary data is collected by un-structured questionnaire administered by sitting with
guide and discussing problems.

 Secondary Sources:
The secondary data is data, which is collected and compiled for the different purpose,
which are used in research for this study.
The secondary data include material collected from:
 Newspaper
 Magazine
 Internet

Data collection instruments


The various method of data gathering involves the use of appropriate recording forms.
These are called 'tools' or 'instruments of data collection.
Collection Instruments:
1. Observation
2. Interview guide
3. Interview schedule
Each tool is used for specific method of data gathering. The tool for data collection
translates the research objectives in to specific term/questions to the response, which will provide
research objective.
The instrument data collection in our study interview schedule mainly. Every respondent
was conducted personally with an interview schedule containing questions. Interview method
was used because it can be explained more easily and clearly and takes less time to answer.

Assumptions:

The research was based on the following assumption:


1. The methodologies used for this purpose are survey and questionable method. It is
assumed that this method is more suitable for collection of data.
2. It is assumed that the respondent have sufficient knowledge to ensure questionable.

CHAPTERIZATION SCHEME:
This includes the table of content of the desired study:

 An introduction to the study


 Various tools and techniques like forward, future, options, swaps, etc. used in the same.
 Practical illustration of the cases included.
 An introduction to the derivative market and derivative trading
 Research report on the perception of the derivative trading in investors
 Research Analysis

REFERENCE

The materials used for the study are the as listed:


 Financial Derivatives- Theory, concept and problem by S.L. Gupta.
Links used as
 www.nseindia.com
 www.bse.com
 www.economictimes.com
 www.NCAER.com

Magazines used as:


 Business Today
 Newspaper- Economics Times, the Hindu

Research Report

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