derivative market & instruments

1. BY- ADITYA KUMAR SINGH
CHARACTERSTICS OF
DERIVATIVE MARKET
INSTRUMENTS

2. Derivatives are the Financial instruments that
derive their value from changes in the value of a
related asset or liability.
Derivative market instruments or derivatives are a
category of f inancial instruments that includes
options, futures, forwards & swaps.
DERIVATIVE MARKET
INSTRUMENTS

3. Forward Contracts
Futures Contracts
Option Contracts
Swaps
INSTRUMENTS

4. Forward market is relatively a simple
derivative . It is an agreement to buy or
sell an asset at a certain future time for a
certain price agreed today.
FORWARD CONTRACT

5. 1.These are bilateral contracts & hence
exposed to counter-party risks.
2. Each contract is custom designed, & hence is
unique in terms of contract size, expiration date
& the asset type & quality.
3. Contract price is generally not available in
public domain.
4. Contract has to be settled by delivery of the
asset on expiration date.
CHARACTERSTICS

6. 5. Contract can be reversed only with the
same counter party which being in a
monopoly situation can command the
prices it wants.
6. Follow daily settlements .
7. OVER THE COUNTER(OTC) market
trading.

7. Futures contract s is an agreement
between two parties to buy or sell an asset
at a certain time in the future for a certain
price.
FUTURE CONTRACTS

8. 1. Regulated & highly controlled market.
2. Future markets are traded on an exchange.
3. Since they are traded on exchange , these are
highly standardized.
4. Clearing house is the buyer for every seller.
5. Settlement at the time of delivery.
6. Margins are payable by both the parties.
7. Delivery is realised several days after
maturity.
CHARACTERSTICS

9. An option is a contract which gives the
buyer the right to buy or sell an
underlying asset or instrument at a
specific strike price on a specified date.
OPTIONS

10. 1. Buyer has the right to buy or sell the
asset.
2. To acquire the right of an option, buyer
of the option must pay a price to the seller.
This is known as premium.
3. Strike price is determined at the
beginning of the transaction.
CHARACTERSTICS

11. 4. The expiration date is the final date
that the option holder has to exercise its
right to buy or sell the underlying asset.
5. It can be traded on both OTC &
EXCHANGE.
6. Types of options: CALL & PUT.
Option that gives right to buy is called call
option whereas Option that gives right to
sell is called put option.

12. A swap is a derivative instrument or
contract through which two parties
exchange financial instruments.
SWAPS

13. 1. Swaps are an OTC instruments.
2. At initiation neither party pays any
amount to another except currency swap
in which the parties exchange amounts
denominated in two different currencies
but equal in value.
3. The payment between the parties is
based on net owed amount.
CHARACTERSTICS

14. 4. Two important dates:
a) Settlement date- refers to each date
the parties exchange the payments
b) Termination date-refers to final
payment between the parties.