Derivatives Meaning And Types - Management Commerce UPSC NET

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DERIVATIVES: MEANING AND TYPES
Sonam Topwal
MBA, M.com, UGC NET
MEANING
In our day to day life, we sometimes enter into a contract with other people to purchase something on a future date so that we can benefit from the price fluctuations.

Derivates are basically the financial contracts that derive their value from an underlying asset.

PARTICIPANTS IN THE DERIVATIVE MARKET
Hedgers: These are the investors with a present or anticipated exposure in the underlying assets like share, mutual fund etc which are subject to market risks.

Speculators: They are basically those investors who first take a view whether the price will rise or fall in the future and accordingly buy or sell derivatives to make profits from future price fluctuations.
Arbitragers: They are basically the ones who take a short and long term position in the same or different contracts at the same time to generate a risk less gain or profit.
TYPES OF DERIVATIVES CONTRACTS
FORWARDS: These are the oldest form of derivative contracts. Here the parties enter into an agreement of buying and selling something in future at a predecided rate and also the predecided quality and quality.

For example: Mr. Sohan enters into a contract with Miss. Sonia to buy 100kg of apples at a future date at a certain price.
FUTURES: These are very much similar to the forwards except the fact that they are executes in a stock market. Parties enter into a contract and fulfills the agreement on a future date.

For example: Miss Sonam expects that the price of Indian Oil shares will rise in future let’s say due to hope of increased production. On the other hand Mr. Arjun believes that the price will fall. So they both enter into a contract of buying and selling contract in future .
OPTIONS: These contracts are having the flexibility that it can be upon the buyer or sellers will to follow or not to follow contract in future.

Call option is when the buyer has the right but not the obligation to buy at a future date whereas in Put option the seller has the right not the obligation
LET’s PRACTICE
What does going long in futures contract mean?

Sell
Buy
Retain
Hedge
Which contact is executed in stock markets?

Options
Futures
Forwards
Both A and B


CHAPTER
00:00 Derivatives Meaning And Types
00:10 Meaning
01:02 Participants In The Derivative Market
03:40 Types Of Derivatives Contracts
06:53 Summary
10:18 Lets Practice

#DerivativesMeaningAndTypes#Meaning#ParticipantsInTheDerivativeMarket#TypesOfDerivativesContracts#Summary#LetsPractice#Testprep#
Category
Management
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