A study on trends in financial derivatives in India with reference to India Infoline Ltd

Financial derivatives are financial instruments that “derive” value from an underlying item such as an asset or index. The use of derivatives provides exposure to the linked underlying item without necessitating the trade or exchange of the item itself. This allows specific risks, such as commodity or equity price fluctuations, to be traded in financial markets. Many derivatives are traded on exchanges such as the Chicago Mercantile Exchange (CME) or over the counter (OTC). The main purposes of derivatives are risk control, arbitrage, and speculation. Derivatives allow risk of the underlying asset or index to be transferred between entities. This permits intermediary financial institutions and other entities that are more capable or knowledgeable about the specific risk to manage these risks. The latest buzzword ready to hit Indian financial markets is Derivative. Derivatives are wasting assets, which derive their values from an underlying asset. These underlying assets are of various categories like equity, bonds, commodities etc. For example, a dollar forward is a derivative contract, which gives the buyer a right & an obligation to buy dollars at some future date. The prices of the derivatives are driven by the spot prices of these underlying assets. The present paper includes detailed role of futures and options in Indian derivative markets.