Derivatives are financial contracts whose value is based on an underlying asset. There are several types of derivatives including forwards, futures, options, and swaps. Derivatives allow participants like hedgers and speculators to manage risks and implement asset allocation strategies. Derivatives play an important role in modern economies by facilitating price discovery, risk management techniques, and increasing market efficiency.

1. Role of Derivative in the Current
Economy

2. What is Derivative?
• A derivative is a contract between two parties
which derives its value/price from an underlying
asset. The most common types of derivatives are
futures, options, forwards and swaps.

3. Features of Derivatives
• Derivatives are not physical assets.
• Derivatives have maturity or expiry.
• Derivatives Market is highly liquid.

4. Participants in Derivatives Market
• Hedgers
• Speculators
• Arbitrageurs

5. Types of derivatives
• Forward
• Futures
• Options
• Swaps

6. Types of derivatives
• Forwards
A contractual agreement between two parties to buy or sell an
underlying asset at a certain future date for particular price that is pre
decided on the date of contract.
• Futures
Standardized forward contract traded on organized exchange.
• Options
Contracts that gives the older to buy / sell specified quantity of
underlying asset at a particular price on or before a specified period of
time.
• Swaps
2 counter parties agree to enter into a contractual agreement wherein
they agree to exchange cash flow at periodic intervals.

7. Role and Functions of Derivatives
• Price discovery of the underlying asset
• Techniques of risk management
• Operational advantages
• Market efficiency

8. Why Derivatives are important?
The uses of derivative instruments are generally
attributed to:
•Risk Sharing
• Implementation of Asset allocation Decisions
•Information gathering
•Price discovery and Liquidity

9. Conclusion
Derivative securities markets play an important
role by allowing investors who do not want the
risks associated with holding an asset to transfer it
to those who do. ... People who reduce their risk
by entering a derivative market are called hedgers,
and those who increase their risk are called
speculators.

10. Thank You