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CHAPTER 1
BACKGROUND OF THE STUDY
Consider a hypothetical situation in which ABC trading company has to import a raw
material for manufacturing goods. But this raw material is required only after 3 months.
However in 3 months the prices of raw material may go up or go down due to foreign exchange
fluctuations and at this point of time it can not be predicted whether the prices would go up or
come down. Thus he is exposed to risks with fluctuations in forex rates. If he buys the goods in
advance then he will incur heavy interest and storage charges. However, the availability of
derivatives solves the problem of importer. He can buy currency derivatives. Now any loss due
to rise in raw material prices would be offset by profits on the futures contract and vice versa.
Hence the company can hedge its risk through the use of derivatives
INTRODUCTION :
Derivatives are one of the most complex instruments. The word derivative comes from
the word ‘to derive’. It indicates that it has no independent value. A derivative is a contract
whose value is derived from the value of another asset, known as the underlying asset, which

2. could be a share, a stock market index, an interest rate, a commodity, or a currency. The
underlying is the identification tag for a derivative contract. When the price of the underlying
changes, the value of the derivative also changes. Without an underlying asset, derivatives do not
have any meaning. For example, the value of a gold futures contract derives from the value of
the underlying asset i.e., gold. The prices in the derivatives market are driven by the spot or cash
market price of the underlying asset, which is gold in this example.
Derivatives are very similar to insurance. Insurance protects against specific risks, such
as fire, floods, theft and so on. Derivatives on the other hand, take care of market risks - volatility
in interest rates, currency rates, commodity prices, and share prices. Derivatives offer a sound
mechanism for insuring against various kinds of risks arising in the world of finance. They offer
a range of mechanisms to improve redistribution of risk, which can be extended to every product
existing, from coffee to cotton and live cattle to debt instruments.
In this era of globalisation, the world is a riskier place and exposure to risk is growing.
Risk cannot be avoided or ignored. Man, however is risk averse. The risk averse characteristic of
human beings has brought about growth in derivatives. Derivatives help the risk averse
individuals by offering a mechanism for hedging risks.
Derivative products, several centuries ago, emerged as hedging devices against
fluctuations in commodity prices. Commodity futures and options have had a lively existence for
several centuries. Financial derivatives came into the limelight in the post-1970 period; today
they account for 75 percent of the financial market activity in Europe, North America, and East
Asia. The basic difference between commodity and financial derivatives lies in the nature of the
underlying instrument. In commodity derivatives, the underlying asset is a commodity; it may be
wheat, cotton, pepper, turmeric, corn, orange, oats, Soya beans, rice, crude oil, natural gas, gold,
silver, and so on. In financial derivatives, the underlying includes treasuries, bonds, stocks, stock
index, foreign exchange, and Euro dollar deposits. The market for financial derivatives has
grown tremendously both in terms of variety of instruments and turnover.
Presently, most major institutional borrowers and investors use derivatives. Similarly,
many act as intermediaries dealing in derivative transactions. Derivatives are responsible for not

3. only increasing the range of financial products available but also fostering more precise ways of
understanding, quantifying and managing financial risk.
Derivatives contracts are used to counter the price risks involved in assets and liabilities.
Derivatives do not eliminate risks. They divert risks from investors who are risk averse to those
who are risk neutral. The use of derivatives instruments is the part of the growing trend among
financial intermediaries like banks to substitute off-balance sheet activity for traditional lines of
business. The exposure to derivatives by banks have implications not only from the point of
capital adequacy, but also from the point of view of establishing trading norms, business rules
and settlement process. Trading in derivatives differ from that in equities as most of the
derivatives are market to the market.
DEFINITION OF DERIVATIVES :
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.
According to Securities Contracts (Regulation) Act, 1956 {SC(R)A}, derivatives is
 A security derived from a debt instrument, share, loan, whether secured or unsecured,
risk instrument or contract for differences or any other form of security.
 A contract which derives its value from the prices, or index of prices, of underlying
securities.
Derivatives are securities under the Securities Contract (Regulation) Act and hence the
trading of derivatives is governed by the regulatory framework under the Securities Contract
(Regulation) Act.
HISTORY OF DERIVATIVES :

4. The history of derivatives is quite colourful and surprisingly a lot longer than most people
think. Forward delivery contracts, stating what is to be delivered for a fixed price at a specified
place on a specified date, existed in ancient Greece and Rome. Roman emperors entered forward
contracts to provide the masses with their supply of Egyptian grain. These contracts were also
undertaken between farmers and merchants to eliminate risk arising out of uncertain future prices
of grains. Thus, forward contracts have existed for centuries for hedging price risk.
The first organized commodity exchange came into existence in the early 1700’s in
Japan. The first formal commodities exchange, the Chicago Board of Trade (CBOT), was
formed in 1848 in the US to deal with the problem of ‘credit risk’ and to provide centralised
location to negotiate forward contracts. From ‘forward’ trading in commodities emerged the
commodity ‘futures’. The first type of futures contract was called ‘to arrive at’. Trading in
futures began on the CBOT in the 1860’s. In 1865, CBOT listed the first ‘exchange traded’
derivatives contract, known as the futures contracts. Futures trading grew out of the need for
hedging the price risk involved in many commercial operations.
The Chicago Mercantile Exchange (CME), a spin-off of CBOT, was formed in 1919,
though it did exist before in 1874 under the names of ‘Chicago Produce Exchange’ (CPE) and
‘Chicago Egg and Butter Board’ (CEBB). The first financial futures to emerge were the
currency in 1972 in the US. The first foreign currency futures were traded on May 16, 1972, on
International Monetary Market (IMM), a division of CME. The currency futures traded on
the IMM are the British Pound, the Canadian Dollar, the Japanese Yen, the Swiss Franc, the
German Mark, the Australian Dollar, and the Euro dollar. Currency futures were followed soon
by interest rate futures.
Interest rate futures contracts were traded for the first time on the CBOT on October 20,
1975. Stock index futures and options emerged in 1982. The first stock index futures contracts
were traded on Kansas City Board of Trade on February 24, 1982.
The first of the several networks, which offered a trading link between two exchanges,
was formed between the Singapore International Monetary Exchange (SIMEX) and the CME
on September 7, 1984.

5. Options are as old as futures. Their history also dates back to ancient Greece and Rome.
Options are very popular with speculators in the tulip craze of seventeenth century Holland.
Tulips, the brightly coloured flowers, were a symbol of affluence; owing to a high demand, tulip
bulb prices shot up. Dutch growers and dealers traded in tulip bulb options. There was so much
speculation that people even mortgaged their homes and businesses. These speculators were
wiped out when the tulip craze collapsed in 1637 as there was no mechanism to guarantee the
performance of the option terms.
The first call and put options were invented by an American financier, Russell Sage, in
1872. These options were traded over the counter. Agricultural commodities options were traded
in the nineteenth century in England and the US. Options on shares were available in the US on
the over the counter (OTC) market only until 1973 without much knowledge of valuation. A
group of firms known as Put and Call brokers and Dealer’s Association was set up in early
1900’s to provide a mechanism for bringing buyers and sellers together.
On April 26, 1973, the Chicago Board options Exchange (CBOE) was set up at CBOT
for the purpose of trading stock options. It was in 1973 again that black, Merton, and Scholes
invented the famous Black-Scholes Option Formula. This model helped in assessing the fair
price of an option which led to an increased interest in trading of options. With the options
markets becoming increasingly popular, the American Stock Exchange (AMEX) and the
Philadelphia Stock Exchange (PHLX) began trading in options in 1975.
The market for futures and options grew at a rapid pace in the eighties and nineties. The
collapse of the Bretton Woods regime of fixed parties and the introduction of floating rates for
currencies in the international financial markets paved the way for development of a number of
financial derivatives which served as effective risk management tools to cope with market
uncertainties.
The CBOT and the CME are two largest financial exchanges in the world on which
futures contracts are traded. The CBOT now offers 48 futures and option contracts (with the
annual volume at more than 211 million in 2001).The CBOE is the largest exchange for trading

6. stock options. The CBOE trades options on the S&P 100 and the S&P 500 stock indices. The
Philadelphia Stock Exchange is the premier exchange for trading foreign options.
The most traded stock indices include S&P 500, the Dow Jones Industrial Average, the
Nasdaq 100, and the Nikkei 225. The US indices and the Nikkei 225 trade almost round the
clock. The N225 is also traded on the Chicago Mercantile Exchange.
DERIVATIVES IN INDIA :
India has started the innovations in financial markets very late. Some of the recent
developments initiated by the regulatory authorities are very important in this respect. Futures
trading have been permitted in certain commodity exchanges. Mumbai Stock Exchange has
started futures trading in cottonseed and cotton under the BOOE and under the East India Cotton
Association. Necessary infrastructure has been created by the National Stock Exchange (NSE)
and the Bombay Stock Exchange (BSE) for trading in stock index futures and the
commencement of operations in selected scripts.
Liberalised exchange rate management system has been introduced in the year 1992 for
regulating the flow of foreign exchange. A committee headed by S.S.Tarapore was constituted to
go into the merits of full convertibility on capital accounts. RBI has initiated measures for
freeing the interest rate structure. It has also envisioned Mumbai Inter Bank Offer Rate
(MIBOR) on the line of London Inter Bank Offer Rate (LIBOR) as a step towards
introducing Futures trading in Interest Rates and Forex. Badla transactions have been banned in
all 23 stock exchanges from July 2001. NSE has started trading in index options based on the
NIFTY and certain Stocks.
EQUITY DERIVATIVES IN INDIA
In the decade of 1990’s revolutionary changes took place in the institutional
infrastructure in India’s equity market. It has led to wholly new ideas in market design that has
come to dominate the market. These new institutional arrangements, coupled with the
widespread knowledge and orientation towards equity investment and speculation, have
combined to provide an environment where the equity spot market is now India’s most

7. sophisticated financial market. One aspect of the sophistication of the equity market is seen in
the levels of market liquidity that are now visible.
The market impact cost of doing program trades of Rs.5 million at the NIFTY index is
around 0.2%. This state of liquidity on the equity spot market does well for the market
efficiency, which will be observed if the index futures market when trading commences. India’s
equity spot market is dominated by a new practice called ‘Futures – Style settlement’ or account
period settlement. In its present scene, trades on the largest stock exchange (NSE) are netted
from Wednesday morning till Tuesday evening, and only the net open position as of Tuesday
evening is settled. The future style settlement has proved to be an ideal launching pad for the
skills that are required for futures trading.
Stock trading is widely prevalent in India, hence it seems easy to think that derivatives
based on individual securities could be very important. The index is the counter piece of
portfolio analysis in modern financial economies. Index fluctuations affect all portfolios. The
index is much harder to manipulate. This is particularly important given the weaknesses of Law
Enforcement in India, which have made numerous manipulative episodes possible. The market
capitalisation of the NSE-50 index is Rs.2.6 trillion.
This is six times larger than the market capitalisation of the largest stock and 500 times
larger than stocks such as Sterlite, BPL and Videocon. If market manipulation is used to
artificially obtain 10% move in the price of a stock with a 10% weight in the NIFTY, this yields
a 1% in the NIFTY. Cash settlements, which is universally used with index derivatives, also
helps in terms of reducing the vulnerability to market manipulation, in so far as the ‘short-
squeeze’ is not a problem. Thus, index derivatives are inherently less vulnerable to market
manipulation.
A good index is a sound trade of between diversification and liquidity. In India the
traditional index- the BSE – sensitive index was created by a committee of stockbrokers in 1986.
It predates a modern understanding of issues in index construction and recognition of the pivotal
role of the market index in modern finance. The flows of this index and the importance of the
market index in modern finance, motivated the development of the NSE-50 index in late 1995.

8. Many mutual funds have now adopted the NIFTY as the benchmark for their performance
evaluation efforts. If the stock derivatives have to come about, the should restricted to the most
liquid stocks. Membership in the NSE-50 index appeared to be a fair test of liquidity. The 50
stocks in the NIFTY are assuredly the most liquid stocks in India.
The choice of Futures vs. Options is often debated. The difference between these
instruments is smaller than, commonly imagined, for a futures position is identical to an
appropriately chosen long call and short put position. Hence, futures position can always be
created once options exist. Individuals or firms can choose to employ positions where their
downside and exposure is capped by using options. Risk management of the futures clearing is
more complex when options are in the picture. When portfolios contain options, the calculation
of initial price requires greater skill and more powerful computers. The skills required for pricing
options are greater than those required in pricing futures.
COMMODITY DERIVATIVES TRADING IN INDIA
In India, the futures market for commodities evolved by the setting up of the “Bombay
Cotton Trade Association Ltd.”, in 1875. A separate association by the name "Bombay Cotton
Exchange Ltd” was established following widespread discontent amongst leading cotton mill
owners and merchants over the functioning of the Bombay Cotton Trade Association. With the
setting up of the ‘Gujarati Vyapari Mandali” in 1900, the futures trading in oilseed began.
Commodities like groundnut, castor seed and cotton etc began to be exchanged.
Raw jute and jute goods began to be traded in Calcutta with the establishment of the
“Calcutta Hessian Exchange Ltd.” in 1919. The most notable centres for existence of futures
market for wheat were the Chamber of Commerce at Hapur, which was established in 1913.
Other markets were located at Amritsar, Moga, Ludhiana, Jalandhar, Fazilka, Dhuri, Barnala and
Bhatinda in Punjab and Muzaffarnagar, Chandausi, Meerut, Saharanpur, Hathras, Gaziabad,
Sikenderabad and Barielly in U.P. The Bullion Futures market began in Bombay in 1990. After
the economic reforms in 1991 and the trade liberalization, the Govt. of India appointed in June
1993 one more committee on Forward Markets under Chairmanship of Prof. K.N. Kabra. The
Committee recommended that futures trading be introduced in basmati rice, cotton, raw jute and

9. jute goods, groundnut, rapeseed/mustard seed, cottonseed, sesame seed, sunflower seed,
safflower seed, copra and soybean, and oils and oilcakes of all of them, rice bran oil, castor oil
and its oilcake, linseed, silver and onions.
All over the world commodity trade forms the major backbone of the economy. In India,
trading volumes in the commodity market have also seen a steady rise - to Rs 5,71,000 crore in
FY05 from Rs 1,29,000 crore in FY04. In the current fiscal year, trading volumes in the
commodity market have already crossed Rs 3,50,000 crore in the first four months of trading.
Some of the commodities traded in India include Agricultural Commodities like Rice Wheat,
Soya, Groundnut, Tea, Coffee, Jute, Rubber, Spices, Cotton, Precious Metals like Gold & Silver,
Base Metals like Iron Ore, Aluminium, Nickel, Lead, Zinc and Energy Commodities like crude
oil, coal. Commodities form around 50% of the Indian GDP. Though there are no institutions or
banks in commodity exchanges, as yet, the market for commodities is bigger than the market for
securities. Commodities market is estimated to be around Rs 44,00,000 Crores in future.
Assuming a future trading multiple is about 4 times the physical market, in many countries it is
much higher at around 10 times.
DEVELOPMENT OF DERIVATIVES MARKET IN INDIA :
The first step towards introduction of derivatives trading in India was the promulgation of
the Securities Laws (Amendment) Ordinance, 1995, which withdrew the prohibition on options
in securities. The market for derivatives, however, did not take off, as there was no regulatory
framework to govern trading of derivatives. SEBI set up a 24–member committee under the
Chairmanship of Dr.L.C.Gupta on November 18, 1996 to develop appropriate regulatory
framework for derivatives trading in India. The committee submitted its report on March 17,
1998 prescribing necessary pre–conditions for introduction of derivatives trading in India. The
committee recommended that derivatives should be declared as ‘securities’ so that regulatory
framework applicable to trading of ‘securities’ could also govern trading of securities.
SEBI also set up a group in June 1998 under the Chairmanship of Prof.J.R.Varma, to
recommend measures for risk containment in derivatives market in India. The report, which was
submitted in October 1998, worked out the operational details of margining system,

10. methodology for charging initial margins, broker net worth, deposit requirement and real–time
monitoring requirements.
The Securities Contract Regulation Act (SCRA) was amended in December 1999 to
include derivatives within the ambit of ‘securities’ and the regulatory framework was developed
for governing derivatives trading. The act also made it clear that derivatives shall be legal and
valid only if such contracts are traded on a recognized stock exchange, thus precluding OTC
derivatives. The government also rescinded in March 2000, the three decade old notification,
which prohibited forward trading in securities. Derivatives trading commenced in India in June
2000 after SEBI granted the final approval to this effect in May 2001. SEBI permitted the
derivative segments of two stock exchanges, NSE and BSE, and their clearing house/corporation
to commence trading and settlement in approved derivatives contracts. To begin with, SEBI
approved trading in index futures contracts based on S&P CNX Nifty and BSE–30 (Sense)
index. This was followed by approval for trading in options based on these two indexes and
options on individual securities.
The trading in BSE Sensex options commenced on June 4, 2001 and the trading in
options on individual securities commenced in July 2001. Futures contracts on individual stocks
were launched in November 2001. The derivatives trading on NSE commenced with S&P CNX
Nifty Index futures on June 12, 2000. The trading in index options commenced on June 4, 2001
and trading in options on individual securities commenced on July 2, 2001.
Single stock futures were launched on November 9, 2001. The index futures and options
contract on NSE are based on S&P CNX Trading and settlement in derivative contracts is done
in accordance with the rules, byelaws, and regulations of the respective exchanges and their
clearing house/corporation duly approved by SEBI and notified in the official gazette. Foreign
Institutional Investors (FIIs) are permitted to trade in all Exchange traded derivative products.
The following are some observations based on the trading statistics provided in the NSE
report on the futures and options (F&O):
 Single-stock futures continue to account for a sizable proportion of the F&O segment. It
constituted 70 per cent of the total turnover during June 2002. A primary reason

11. attributed to this phenomenon is that traders are comfortable with single-stock futures
than equity options, as the former closely resembles the erstwhile badla system.
 On relative terms, volumes in the index options segment continues to remain poor. This
may be due to the low volatility of the spot index. Typically, options are considered more
valuable when the volatility of the underlying (in this case, the index) is high. A related
issue is that brokers do not earn high commissions by recommending index options to
their clients, because low volatility leads to higher waiting time for round-trips.
 Put volumes in the index options and equity options segment have increased since
January 2002. The call-put volumes in index options have decreased from 2.86 in January
2002 to 1.32 in June. The fall in call-put volumes ratio suggests that the traders are
increasingly becoming pessimistic on the market.
 Farther month futures contracts are still not actively traded. Trading in equity options on
most stocks for even the next month was non-existent.
 Daily option price variations suggest that traders use the F&O segment as a less risky
alternative (read substitute) to generate profits from the stock price movements. The fact
that the option premiums tail intra-day stock prices is evidence to this. If calls and puts
are not looked as just substitutes for spot trading, the intra-day stock price variations
should not have a one-to-one impact on the option premiums.
FACTORS CONTRIBUTING TO THE GROWTH OF DERIVATIVES :
Factors contributing to the explosive growth of derivatives are price volatility,
globalisation of the markets, technological developments and advances in the financial theories.
PRICE VOLATILITY
A price is what one pays to acquire or use something of value. The objects having value
maybe commodities, local currency or foreign currencies. The concept of price is clear to almost
everybody when we discuss commodities. There is a price to be paid for the purchase of food
grain, oil, petrol, metal, etc. the price one pays for use of a unit of another persons money is

12. called interest rate. And the price one pays in one’s own currency for a unit of another currency
is called as an exchange rate.
Prices are generally determined by market forces. In a market, consumers have ‘demand’
and producers or suppliers have ‘supply’, and the collective interaction of demand and supply in
the market determines the price. These factors are constantly interacting in the market causing
changes in the price over a short period of time. Such changes in the price is known as ‘price
volatility’. This has three factors : the speed of price changes, the frequency of price changes and
the magnitude of price changes.
The changes in demand and supply influencing factors culminate in market adjustments
through price changes. These price changes expose individuals, producing firms and
governments to significant risks. The break down of the BRETTON WOODS agreement
brought and end to the stabilising role of fixed exchange rates and the gold convertibility of the
dollars. The globalisation of the markets and rapid industrialisation of many underdeveloped
countries brought a new scale and dimension to the markets. Nations that were poor suddenly
became a major source of supply of goods.
The Mexican crisis in the south east-Asian currency crisis of 1990’s have also brought
the price volatility factor on the surface. The advent of telecommunication and data processing
bought information very quickly to the markets. Information which would have taken months to
impact the market earlier can now be obtained in matter of moments. Even equity holders are
exposed to price risk of corporate share fluctuates rapidly.
These price volatility risk pushed the use of derivatives like futures and options
increasingly as these instruments can be used as hedge to protect against adverse price changes
in commodity, foreign exchange, equity shares and bonds.

13. GLOBALISATION OF MARKETS
Earlier, managers had to deal with domestic economic concerns ; what happened in other
part of the world was mostly irrelevant. Now globalisation has increased the size of markets and
as greatly enhanced competition .it has benefited consumers who cannot obtain better quality
goods at a lower cost. It has also exposed the modern business to significant risks and, in many
cases, led to cut profit margins
In Indian context, south East Asian currencies crisis of 1997 had affected the
competitiveness of our products vis-à-vis depreciated currencies. Export of certain goods from
India declined because of this crisis. Steel industry in 1998 suffered its worst set back due to
cheap import of steel from south east asian countries. Suddenly blue chip companies had turned
in to red. The fear of china devaluing its currency created instability in Indian exports. Thus, it is
evident that globalisation of industrial and financial activities necessitiates use of derivatives to
guard against future losses. This factor alone has contributed to the growth of derivatives to a
significant extent.
TECHNOLOGICAL ADVANCES –
A significant growth of derivative instruments has been driven by technological break
through. Advances in this area include the development of high speed processors, network
systems and enhanced method of data entry. Closely related to advances in computer technology
are advances in telecommunications. Improvement in communications allow for instantaneous
world wide conferencing, Data transmission by satellite. At the same time there were significant
advances in software programmes without which computer and telecommunication advances
would be meaningless. These facilitated the more rapid movement of information and
consequently its instantaneous impact on market price.

14. Although price sensitivity to market forces is beneficial to the economy as a whole
resources are rapidly relocated to more productive use and better rationed overtime the greater
price volatility exposes producers and consumers to greater price risk. The effect of this risk can
easily destroy a business which is otherwise well managed. Derivatives can help a firm manage
the price risk inherent in a market economy. To the extent the technological developments
increase volatility, derivatives and risk management products become that much more important.
ADVANCES IN FINANCIAL THEORIES –
Advances in financial theories gave birth to derivatives. Initially forward contracts in its
traditional form, was the only hedging tool available. Option pricing models developed by Black
and Scholes in 1973 were used to determine prices of call and put options. In late 1970’s, work
of Lewis Edeington extended the early work of Johnson and started the hedging of financial
price risks with financial futures. The work of economic theorists gave rise to new products for
risk management which led to the growth of derivatives in financial markets.
The above factors in combination of lot many factors led to growth of derivatives
instruments.

15. CHAPTER 2
RESEARCH DESING
TITLE OF THE STUDY
“A study of Financial Derivatives”
STATEMENT OF THE PROBLEM
Financial Derivatives are quite new to the Indian Financial Market, but the derivatives
market has shown an immense potential which is visible by the growth it has achieved in the
recent past, In the present changing financial environment and an increased exposure towards
financial risks, It is of immense importance to have a good working knowledge of Derivatives.
In recent times the Derivative markets have gained importance in terms of their vital role
in the economy. The increasing investments in derivatives (domestic as well as overseas) have
attracted my interest in this area. Through the use of derivative products, it is possible to partially
or fully transfer price risks by locking-in asset prices. As the volume of trading is tremendously
increasing in derivatives market, this analysis will be of immense help to the investors.
OBJECTIVES OF THE STUDY
• To study the trading procedures for Derivative products
• To study the features of Derivatives products such as Futures and Options.
• To study the clearing and settlement procedure of Derivatives products
• To analyze the operations of futures and options.
• To find the profit/loss position of futures buyer and seller and also the option writer and
option holder.
• To study about risk management with the help of derivatives.

16. SCOPE OF THE STUDY
The study is limited to “Derivatives” with special reference to futures and option in the
Indian context and the Inter-Connected Stock Exchange has been taken as a representative
sample for the study. The study can’t be said as totally perfect. Any alteration may come. The
study has only made a humble attempt at evaluation derivatives market only in India context.
The study is not based on the international perspective of derivatives markets, which exists in
NASDAQ, CBOT etc.
RESEARCH METHODOLOGY :
A research process consists of stages or steps that guide the project from its conception
through the final analysis, recommendations and ultimate actions. The research process provides
a systematic, planned approach to the research project and ensures that all aspects of the research
project are consistent with each other.
Research studies evolve through a series of steps, each representing the answer to a key
question. This chapter aims to understand the research methodology establishing a framework of
evaluation and revaluation of primary and secondary research. The techniques and concepts used
during primary research in order to arrive at findings; which are also dealt with and lead to a
logical deduction towards the analysis and results.
RESEARCH DESIGN
I propose to first conduct an intensive secondary research to understand the full impact
and implication of the industry, to review and critique the industry norms and reports, on which
certain issues shall be selected, which I feel remain unanswered or liable to change, this shall be
further taken up in the next stage of exploratory research. This stage shall help me to restrict and
select only the important question and issue, which inhabit growth and segmentation in the
industry.
The various tasks that I have undertaken in the research design process are :

17.  Defining the information need
 Design the exploratory, descriptive and causal research.
RESEARCH PROCESS
The research process has four distinct yet interrelated steps for research analysis
It has a logical and hierarchical ordering:
 Determination of information research problem.
 Development of appropriate research design.
 Execution of research design.
 Communication of results.
Each step is viewed as a separate process that includes a combination of task , step and
specific procedure. The steps undertake are logical, objective, systematic, reliable, valid,
impersonal and ongoing.
EXPLORATORY RESEARCH
The method I used for exploratory research was
 Primary Data
 Secondary data
PRIMARY DATA

18. New data gathered to help solve the problem at hand. As compared to secondary data
which is previously gathered data. An example is information gathered by a questionnaire.
Qualitative or quantitative data that are newly collected in the course of research, Consists of
original information that comes from people and includes information gathered from surveys,
focus groups, independent observations and test results. Data gathered by the researcher in the
act of conducting research. This is contrasted to secondary data which entails the use of data
gathered by someone other than the researcher information that is obtained directly from first-
hand sources by means of surveys, observation or experimentation.
Primary data is basically collected by getting questionnaire filled by the respondents.
SECONDARY DATA
Information that already exists somewhere, having been collected for another purpose.
Sources include census reports, trade publications, and subscription services. Data that have
already been collected and published for another research project (other than the one at hand).
There are two types of secondary data: internal and external secondary data. Information
compiled inside or outside the organization for some purpose other than the current investigation.
Data that have already been collected for some purpose other than the current study. Researching
information which has already been published. Market information compiled for purposes other
than the current research effort; it can be internal data, such as existing sales-tracking
information, or it can be research conducted by someone else, such as a market research
company or the U.S. government. Published, already available data that comes from pre-existing
sets of information, like medical records, vital statistics, prior research studies and archival data.
Secondary source of data used consists of books and websites
DESCRIPTIVE RESEARCH
STEPS in the descriptive research:
 Statement of the problem

19.  Identification of information needed to solve the problem
 Selection or development of instruments for gathering the information
 Identification of target population and determination of sampling Plan.
 Design of procedure for information collection
 Collection of information
 Analysis of information
 Generalizations and/or predictions
DATA COLLECTION
Data collection took place with the help of filling of questionnaires. The questionnaire
method has come to the more widely used and economical means of data collection. The
common factor in all varieties of the questionnaire method is this reliance on verbal responses to
questions, written or oral. I found it essential to make sure the questionnaire was easy to read and
understand to all spectrums of people in the sample. It was also important as researcher to
respect the samples time and energy hence the questionnaire was designed in such a way, that its
administration would not exceed 4-5 mins. These questionnaires were personally administered.
The first hand information was collected by making the people fill the questionnaires.
The primary data collected by directly interacting with the people. The respondents were
contacted at shopping malls, markets, places that were near to showrooms of the consumer
durable products etc. The data was collected by interacting with 200 respondents who filled the
questionnaires and gave me the required necessary information. The respondents consisted of
house wives, students, business men, professionals etc. the required information was collected by
directly interacting with these respondents.
DETERMINATION THE SAMPLE PLAN AND SAMPLE SIZE

20. TARGET POPULATION
It is a description of the characteristics of that group of people from whom a course is
intended. It attempts to describe them as they are rather than as the describer would like them to
be. Also called the audience the audience to be served by our project includes key demographic
information (i.e.; age, sex etc.).The specific population intended as beneficiaries of a program.
This will be either all or a subset of potential users, such as adolescents, women, rural residents,
or the residents of a particular geographic area. Topic areas: Governance, Accountability and
Evaluation, Operations Management and Leadership.
A population to be reached through some action or intervention; may refer to groups with
specific demographic or geographic characteristics. The group of people you are trying to reach
with a particular strategy or activity. The target population is the population I want to make
conclusions about. In an ideal situation, the sampling frames to matches the target population. A
specific resource set that is the object or target of investigation. The audience defined in age,
background, ability, and preferences, among other things, for which a given course of instruction
is intended.
SAMPLE SIZE :
This involves figuring out how many samples one need.
The numbers of samples we need are affected by the following factors:
 Project goals
 How you plan to analyze your data
 How variable your data are or are likely to be
 How precisely you want to measure change or trend
 The number of years over which you want to detect a trend
 How many times a year you will sample each point

21.  How much money and manpower you have
SAMPLING TECHNIQUE
Simple random sampling technique has been used to select the sample. A simple random
sample is a group of subjects (a sample) chosen from a larger group (a population). Each subject
from the population is chosen randomly and entirely by chance, such that each subject has the
same probability of being chosen at any stage during the sampling process. This process and
technique is known as Simple Random Sampling, and should not be confused with Random
Sampling.
ERRORS IN THE STUDY
Interviewer error
There is interviewer bias in the questionnaire method. Open-ended questions can be
biased by the interviewer’s views or probing, as interviewers are guiding the respondent while
the questionnaire is being filled out. The attitudes the interviewer revels to the respondent during
the interview can greatly affect their level of interest and willingness to answer openly. As
interviewers probing and clarifications maximize respondent understanding and yield complete
answers, these advantages are offset by the problems of prestige seeking, social desirability and
courtesy biases.
Questionnaire error
The questionnaire designing has to careful so that only required data is concisely reveled
and there is no redundant data generated. The questions have to be worded carefully so that the
questions are not loaded and does not lead to a bias in the respondents mind
Respondent error

22. The respondents selected to be interviewed were not always available and willing to co
operate also in most cases the respondents were found to not have the knowledge, opinion,
attitudes or facts required additionally uninformed response errors and response styles also led to
survey error.
Sampling error
We have taken the sample size of 100, which cannot determine the buying behavior of
the total population. The sample has been drawn from only National Capital Region.
Research Design
Research design is a
conceptual structure within which
research is conducted. A research
design is the detailed blueprint used
to guide a research study towards
its objective. It is a series of
advanced decision taken together
comprising a master plan or a
model for conducting the research
in consonance with the research
objectives. Research design is
needed because it facilitates the
smooth sailing of the various research operations, thereby making research as efficient as
possible yielding maximum information with the minimum effort, time and money.
Limitations of the study
• All the research projects are hindered in their smooth flow by some unforeseen problems.
The problems arise in the form of constraints by budget, time and scope of the study. The
current project was also faced by certain problem. Some of the problems faced in the
course of the research are as follows:
RESEARCH DESIGN
EXPLORATORY
RESEARCH
DESIGN
CONCLUSIVE
RESEARCH
DESIGN
DESCRIPTIVE
RESEARCH
CAUSAL
RESEARCH

23. • A strong unwillingness on the part of the owners of various cars, to participate and aid
the research.
• The boredom and wavering concentration that set in among the respondents while
answering the long questionnaire: thus in turn led to the difficulty of preventing
incomplete questionnaires.
• Sampling error: the research include a sample size of 100 customers which is not enough
to determine the brand perception of the consumers for buying the cars. Since its not a
census survey there is always a chance of error while extrapolating the results of a sample
study over the population especially in those researches where the qualitative aspects are
concerned. So it’s always doubtful to map the qualitative aspects using a quantitative
measure.
• The study was limited to the geographical region of Bangalore

24. CHAPTER 3
COMPANY PROFILE
Overview
Founded in 1994, SMC Group is one of India’s leading financial services and investment
solutions providers and has been rated as India’s Best Equity, Derivatives & Currency Broker
and Broking house with the largest Distribution Network. Recently, It has been awarded with the
Best Equity Broking House – Derivative Segment & Fastest Growing Equity Broking House
-Large Firm., (Source: BSE IPF and D&B Equity Broking Awards 2013, 2012 & 2011 and
Bloomberg-UTV Financial Leadership Awards 2012 & 2011). A blend of extensive experience,
diverse talent and client focus has made us achieve this landmark.
Over the years, SMC has expanded its operations domestically as well as internationally.
Existing network includes regional offices at Mumbai, Kolkata, Chennai, Ahmedabad, Jaipur,
Hyderabad, Bangalore plus a growing network of branches & 2500+ registered sub-brokers and
authorized persons spread across 500+ cities and towns in India.
We offer a diverse range of financial services which includes institutional and retail
brokerage of equity, derivatives, commodities, currency, online trading, depository services,
distribution of IPOs ,mutual funds, fixed deposits & bonds, dedicated desk
for NRIs and institutional clients, insurance broking(both life & general), clearing services,
margin financing, investment banking, portfolio management, wealth advisory & research. We
have a workforce of more than 2900 employees and over 20000 registered associates/ service
providers serving the financial needs of a large base of investors efficiently.
We are also amongst the first financial firms in India to expand operations in the lucrative
gulf market, by acquiring license for broking and clearing member with Dubai Gold and
Commodities exchange (DGCX).

25. The SMC Advantage :
1. Large avenues of investment solutions and financial services under one roof
2. Personalized solution and attention offered to each investors
3. Research support and timely advice by our high-tech research wing
4. An extensive network of branch offices
5. A perfect blend of latest technology and rich experience
6. Honesty, transparency and fairness imbibed in our dealings
Providers of one of the best trading platforms in terms of speed, convenience and risk
management to trade in NSE (Cash, F&O, Currency), BSE(Cash, F&O), NCDEX, MCX,
NMCE, ICEX, ACE, USE, NCDEX SPOT, MCX-SX & DGCX.
Key Directors
Mr. S C Aggarwal (Chairman & Managing Director, SMC Group)
Mr. Aggarwal is a promoter of the SMC Group.He has rich and extensive experience of
more than 23 years. He is a fellow member of the Institute of Chartered Accountants of India
(ICAI). He has an in-depth knowledge and strong understanding of various intricacies of
Securities Market and Financial Services. It is through his exceptional leadership skills and
outstanding commitment towards the company that SMC recived several accolades.His efforts

26. have led to the diversification of group business from Stock Broking and Arbitrage to
Commodity Broking, IPOs & Mutual Funds distribution, Insurance Products, Merchant Banking,
Wealth Management and Advisory Services. He is the chairman of the India European Union
Business Promotion Council of ASSOCHAM, co-chairman of the National Council of Capital
Markets and a senior member of the management committee of ASSOCHAM. He has also acted
as a member of the expert group on behalf of ASSOCHAM Working Group constituted by the
Ministry of Corporate Affairs and the Cost Accounting Board.
Mr. Mahesh C Gupta (Vice Chairman & Managing Director, SMC Group)
Mr. Mahesh C Gupta is a Promoter of the SMC Group with more than 23 years of
widespread experience in Securities Market. He is a fellow member of the Institute of Chartered
Accountants of India. His extraordinary leadership skill, astute business acumen and disciplined
life style have helped SMC strongly diversify to a fully fledged financial services firm with
presence across 500 cities providing Brokerage services in equity, commodity, currency &
derivatives, depository services, clearing services, Investment banking, portfolio & wealth
management, distribution of Insurance, IPOs, Mutual Funds, Fixed Deposits and other 3rd party
products. His principles of honesty, transparency and moral integrity have given SMC strong
foundation based on which it has become India’s leading financial services provider. Mr. Gupta
has also given his vital contribution in various conferences & seminars on securities market.
Mr. D K Aggarwal (Chairman & Managing Director – SMC Comtrade Limited ;
Chairman & Managing Director - SMC Capitals Limited; Chairman & Managing Director -
SMC Investments & Advisors Ltd )

27. Mr. DK Aggarwal is a promoter and one of the key architects of success of the SMC
Group. Innovation in offerings, Branding, Research and Arbitrage are his forte. He has more than
20 years of wide and rich experience in Equity and Commodity Broking and Arbitrage. He is an
eminent speaker and regularly presents his views and expertise on various market related issues
through print and television media. He is also a fellow member of the Institute of Chartered
Accountants of India. He is the Immediate Past President of Commodity Participants Association
of India.
Mr. Pradeep Aggarwal Whole Time Director- SMC Global Securities Limited;
Joint Managing Director- SMC Comtrade Ltd.)
Mr. Pradeep Aggarwal is a self motivated person having a professional approach
emphasising on ethics and integrity. He possesses excellent communication and inter-personal
skills & operates collaboratively with his team members to achieve a common goal. With an
experience of more than 17 years in equity and commodity market, he innovates, develops and
effectively implements new ideas for the growth and progress of the Arbitrage business of the
company’s Securities and Commodities business. Mr Aggarwal is a person with unmatched
sharp calculative skills and analytical bent of mind.
Mr. Ajay Garg (Whole Time Director- SMC Global Securities Limited &
Director-SMC Insurance Brokers Pvt Ltd.)
Mr. Ajay Garg is a fellow member of the Institute of Chartered Accountants of India
(ICAI). He has a wide experience of more than 15 years in the Capital Market. Mr. Garg leads
the Broking Operations of SMC Group including Back office operations, entire technological
functioning of the business, Risk Management & Surveillance, Legal & Compliance, Corporate

28. Communications & Brand Management and IT & Software Development. His roles and
responsibilities also include Business Development of Corporate Client Group (CCG) and
handling of Corporate Hedging Desk (SCHD). He is responsible and instrumental for Internet
Based Trading and Mobile Trading, QFI, NRI and B2B Businesses. Under his able guidance
within last few years, SMC has evolved into a well known and a preferred brand in the Indian
Capital Market.
Mr Anurag Bansal (Whole Time Director – SMC Global Securities Ltd.)
Mr. Anurag Bansal, aged 37 years, is a rank holder and fellow member of the Institute of
Chartered Accountants of India (ICAI) and a member of Institute of Cost and Works
Accountants of India (ICWAI). He has extensive experience of over 15 years with SMC in
Capital Markets. His roles and responsibilities include management and supervision of business
development in the field of primary & secondary market through branches spread all over the
country, Institutional Equities business and distribution division apart from legal and other
strategic functions of the organisation. His rich experience and efforts have helped SMC
establish as a reliable name and renowned brand in the country.
Mr. Ravi Aggarwal (Director- SMC Insurance Brokers Pvt. Ltd.)
Mr. Ravi Aggarwal has more than 12 years of experience in Equity and Commodity
Market. An innovative mind having a rich academic and professional background, his roles and
responsibilities include the establishment and development of Insurance Broking venture,
developing pan-India branch network, designing of systems and processes and innovative
marketing programs. He possesses excellent communication and inter-personal skills & operates

29. collaboratively with his team members to achieve a common goal. He is also a member of
Institute of Chartered Accountants of India.
Mr. Lalit Aggarwal (Director- Moneywise Financial Services Pvt. Ltd.)
Mr. Lalit Aggarwal has a rich working experience of more than 17 years in Securities and
Commodities market. He is actively involved in the development and functioning of SMC’s
Arbitrage business His great dedication and devotion to his work is an inspiration for his team. A
man of great intellect, his ideas have helped SMC in the introduction of new services in the
Arbitrage business. His style of working is highly motivational to his team members. Mr
Aggarwal is a person with unmatched sharp calculative skills and analytical bent of mind.
Ms. Shweta Aggarwal (Director- SMC Capitals Limited)
Ms. Aggarwal joined the SMC group in 2005 and in a short span of time, she has
successfully handled multiple critical assignments. In her very first assignment at SMC, she was
the catalyst in successfully setting up of the Human Resource function. She heads the investment
banking vertical of SMC.
Mr. Pravin Agarwal (Director- SMC Insurance Brokers Pvt. Ltd.)

30. Mr. Pravin Agarwal possesses a result oriented professional approach towards the
functions of the organization. With more than a decade of work experience in Insurance and
Financial Industry, he is actively involved in the development of insurance broking venture,
devising strategies for insurance broking and undertaking business development responsibilities.
He is a man with a vision to create a wide-spread business of excellence, he is the inspiration as
he spearheads the company’s management and operations; strategizing and directing it through
its next phase of growth.
Corporate Ethos
Our Vision
To be a global major in providing complete investment solutions, with relentless focus on
investor care, through superior efficiency and complete transparency.
Core Values
Ethical deals : Honesty is the only policy.
Experience and trust : Over 15 years of experience has made SMC earn the trust of a large base
of Investors.
Expertise : Know-how and skills to provide investors an edge. Personalised Solutions: Every
investor is unique. Every solution is unique.
Our Approach
Value for investor’s trust:SMC values the trust reposed in by the clients and is committed
to uphold it at all cost.
Integrity and honesty : Integrity, honesty and transparency are the underlying principles in all
our dealings.
Personalized attention :The most valued asset is our relationship with the clients, which has
been built over years by giving personalized attention.

31. Network which works : SMC has a vast network extending to 500+ cities and towns ensuring
easy accessibility, convenience and hassle free trading experience. Research based advisory
Services : SMC offers proactive and timely world class research based advice and guidance to
its clients to enable them to take informed decisions
Our Credentials
1. Best Equity Broking house in Derivative Segment in India (Source: BSE IPF-D&B
Equity Broking Awards, 2013 & 2012)
2. Fastest Growing Equity Broking House -Large Firm(Source: BSE IPF-D&B Equity
Broking Awards, 2013)
3. Emerging Investment Banker of the year (Source: SMEs Excellence Awards 2013
organised by ASSOCHAM)
4. Best Equity Broking House in India (Source: BSE IPF - D&B Equity Broking Awards,
2012 & 2010)
5. Best Currency Broker in India (Source: Bloomberg - UTV Financial Leadership awards,
2012 & 2011)
6. Broking House with the Largest Distribution Network in India (Source: BSE IPF-D&B
Equity Broking Awards, 2012, 2011 & 2010)
7. Best Research Analyst Award in Equity Fundamentals -Infrastructure (Source: Zee
Business - India's Best Market Analyst Awards, 2013)
8. Best Equity Research Analyst in IPO segment and Best Commodity Research Analyst-
Viewer's Choice (Source: Zee Business India's Best Market Analyst Awards, 2012)
9. Award for Continuous Innovation in HR Strategy at Work by Employer Branding Award
2012-13

32. 10. Learning and Talent Technology Excellence Award by Star News HR and Leadership
Awards, 2012.
11. India’s Best Wealth Management Company (Source: Business Sphere, 2011)
12. Fastest Growing Retail Distribution Network in financial services (Source: Business
Sphere, 2010)
13. Major Volume Driver award from BSE for 3 consecutive years (2006-07, 2005-06 &
2004-2005
Industry Profile :
History of Derivatives Markets in India
Derivatives markets in India have been in existence in one form or the other for a long
time. In the area of commodities, the Bombay Cotton Trade Association started futures trading
way back in 1875. In 1952, the Government of India banned cash settlement and options trading.
Derivatives trading shifted to informal forwards markets. In recent years, government policy has
shifted in favour of an increased role of market-based pricing and less suspicious derivatives
trading. The first step towards introduction of financial derivatives trading in India was the
promulgation of the Securities Laws (Amendment) Ordinance, 1995. It provided for withdrawal
of prohibition on options in securities. The last decade, beginning the year 2000, saw lifting of
ban on futures trading in many commodities. Around the same period, national electronic
commodity exchanges were also set up.
Derivatives trading commenced in India in June 2000 after SEBI granted the final
approval to this effect in May 2001 on the recommendation of L. C Gupta committee. Securities
and Exchange Board of India (SEBI) permitted the derivative segments of two stock exchanges,
NSE3 and BSE4, and their clearing house/corporation to commence trading and settlement in
approved derivatives contracts.
Initially, SEBI approved trading in index futures contracts based on various stock market
indices such as, S&P CNX, Nifty and Sensex. Subsequently, index-based trading was permitted

33. in options as well as individual securities. The trading in BSE Sensex options commenced on
June 4, 2001 and the trading in options on individual securities commenced in July 2001. Futures
contracts on individual stocks were launched in November 2001. The derivatives trading on NSE
commenced with S&P CNX Nifty Index futures on June 12, 2000. The trading in index options
commenced on June 4, 2001 and trading in options on individual securities commenced on July
2, 2001. Single stock futures were launched on November 9, 2001. The index futures and options
contract on NSE are based on S&P CNX. In June 2003, NSE introduced Interest Rate Futures
which were subsequently banned due to pricing issue.
Regulation of Derivatives Trading in India
The regulatory framework in India is based on the L.C. Gupta Committee Report, and the
J.R. Varma Committee Report. It is mostly consistent with the IOSCO5 principles and addresses
the common concerns of investor protection, market efficiency and integrity and financial
integrity. The L.C. Gupta Committee Report provides a perspective on division of regulatory
responsibility between the exchange and the SEBI. It recommends that SEBI’s role should be
restricted to approving rules, bye laws and regulations of a derivatives exchange as also to
approving the proposed derivatives contracts before commencement of their trading.
It emphasises the supervisory and advisory role of SEBI with a view to permitting
desirable flexibility, maximizing regulatory effectiveness and minimizing regulatory cost.
Regulatory requirements for authorization of derivatives brokers/dealers include relating to
capital adequacy, net worth, certification requirement and initial registration with SEBI. It also
suggests establishment of a separate clearing corporation, maximum exposure limits, mark to
market margins, margin collection from clients and segregation of clients’ funds, regulation of
sales practice and accounting and disclosure requirements for derivatives trading. The J.R.
Varma committee suggests a methodology for risk containment measures for index-based futures
and options, stock options and single stock futures. The risk containment measures include
calculation of margins, position limits, exposure limits and reporting and disclosure
Derivatives Market India

34. The Indian derivative market has become multi-trillion dollar markets over the years.
Marked with the ability to partially and fully transfer the risk by locking in assets prices,
derivatives are gaining popularity among the investors. Since the economic reforms of 1991,
maximum efforts have been made to boost the investors’ confidence by making the trading
process more users’ friendly. Still, there are some issues in this market. Inspite of the growth in
the derivative market, there are many issue (e.g., the lack of economies of scale, tax and legal
bottlenecks, increased off-balance sheet exposure of Indian banks need for an independent
regulator etc), which need to be immediately resolved to enhance the investors’ confidence in the
Indian derivative market.
Fixed exchange rate was in existence under the Bretton Woods system. According to
Avadhani (2000), Financial derivatives came into the spotlight, when during the post- 1970
period, the US announced its decision to give up gold- dollar parity, the basic king pin of the
Bretton Wood System of fixed exchange rates. With the dismantling of this system in 1971,
exchange rates couldn’t be kept fixed. Interest rates became more volatile due to high
employment and inflation rates. Less developed countries like India opened up their economies
and allowed prices to vary with market conditions. Price fluctuations made it almost impossible
for the corporate sector to estimate future production costs and revenues.
The derivatives provided an effective tool to the problem of risk and uncertainty due to
fluctuations in interest rates, exchange rates, stock market prices and the other underlying assets.
The derivative markets have become an integral part of modern financial system in less than
three decades of their emergence. This paper describes the evolution of Indian derivatives
market, trading mechanism in its various securities, the various unsolved issues and the future
prospects of the derivatives market.
Development of Derivatives Markets in India
Indian Derivatives markets have been in existence in one form or the other for a long
time. In the area of commodities, the Bombay Cotton Trade Association started futures trading in
1875. In 1952, with the ban on cash settlement and option trading by the Government of India,
derivatives trading shifted to informal forwards markets. In recent years, government policy has

35. shifted in favor of an increased role of market-based pricing and less suspicious derivatives
trading. The first step towards the introduction of financial derivatives trading in India was the
promulgation of the Securities Laws (Amendment) Ordinance, 1995. This provided for
withdrawal of prohibition on options in securities. In the last decade, beginning the year 2000,
ban on futures trading in many commodities was lifted out. During the same period, National
Electronic Commodity Exchanges were also set up. Derivatives trading commenced in India in
June 2000 after SEBI granted the final approval to this effect in May 2001 on the
recommendation of L. C Gupta committee. Securities and Exchange Board of India (SEBI)
permitted the derivative segments of two stock exchanges, NSE and BSE, and their clearing
house/corporation to commence trading and settlement in approved derivatives contracts.
Initially SEBI approved trading in index futures contracts based on various stock market indices
such as, S&P CNX, Nifty and Sensex. Subsequently, index-based trading was permitted in
options as well as individual securities.

36. CHAPTER 4
DATA ANALYSIS AND INTERPRETATION

37. BIBLIOGRAPHY
Books referred:
1. Options Futures, and other Derivatives by John C Hull
2. Derivatives FAQ by Ajay Shah
3. NSE’s Certification in Financial Markets: - Derivatives Core module
4. Financial Markets & Services by Gordon & Natarajan
Reports:
1. Report of the RBI- EBI standard technical committee on exchange traded
Currency Futures
2. Regulatory Framework for Financial Derivatives in India by Dr.L.C.GUPTA
Websites visited:
1. www.nse-india.com
2. www.bseindia.com
3. www.sebi.gov.in
4. www.ncdex.com
5. www.derivativesindia.com

39. CHAPTER – 3
 Types of DERIVATIVES
 FUTURES VS. FORWARD MARKETS

40. CHAPTER 3
TYPES OF DERIVATIVES :
There are mainly four types of derivatives i.e. Forwards, Futures, Options and swaps.

41. Derivatives
Forwards Futures Options Swaps
1. FORWARDS -
A contract that obligates one counter party to buy and the other to sell a specific underlying asset
at a specific price, amount and date in the future is known as a forward contract. Forward
contracts are the important type of forward-based derivatives. They are the simplest derivatives.
There is a separate forward market for multitude of underlyings, including the traditional
agricultural or physical commodities, as well as currencies and interest rates. The change in the
value of a forward contract is roughly proportional to the change in the value of its underlying
asset. These contracts create credit exposures. As the value of the contract is conveyed only at

42. the maturity, the parties are exposed to the risk of default during the life of the contract. Forward
contracts are customised with the terms and conditions tailored to fit the particular business,
financial or risk management objectives of the counter parties. Negotiations often take place with
respect to contract size, delivery grade, delivery locations, delivery dates and credit terms.
2. FUTURES -
A future contract is an agreement between two parties to buy or sell an asset at a certain time the
future at the certain price. Futures contracts are the special types of forward contracts in the
sense that are standardized exchange-traded contracts.
Equities, bonds, hybrid securities and currencies are the commodities of the investment business.
They are traded on organised exchanges in which a clearing house interposes itself between
buyer and seller and guarantees all transactions, so that the identity of the buyer or the seller is a
matter of indifference to the opposite party. Futures contract protect those who use these
commodities in their business.
Futures trading are to enter into contracts to buy or sell financial instruments, dealing in
commodities or other financial instruments for forward delivery or settlement on standardised
terms. The futures market facilitates stock holding and shifting of risk. They act as a mechanism
for collection and distribution of information and then perform a forward pricing function. The
futures trading can be performed when there is variation in the price of the actual commodity and
there exists economic agents with commitments in the actual market. There must be a possibility
to specify a standard grade of the commodity and to measure deviations from this grade. A
futures market is established specifically to meet purely speculative demands is possible but is
not known. Conditions which are thought of necessary for the establishment of futures trading

43. are the presence of speculative capital and financial facilities for payment of margins and
contract settlement. In addition, a strong infrastructure is required, including financial, legal and
communication systems.
3. OPTIONS -
A derivative transaction that gives the option holder the right but not the obligation to buy or sell
the underlying asset at a price, called the strike price, during a period or on a specific date in
exchange for payment of a premium is known as ‘option’. Underlying asset refers to any asset
that is traded. The price at which the underlying is traded is called the ‘strike price’.
There are two types of options i.e., CALL OPTION AND PUT OPTION.
a. CALL OPTION :
A contract that gives its owner the right but not the obligation to buy an underlying asset-stock or
any financial asset, at a specified price on or before a specified date is known as a ‘Call option’.
The owner makes a profit provided he sells at a higher current price and buys at a lower future
price.
b. PUT OPTION :

44. A contract that gives its owner the right but not the obligation to sell an underlying asset-stock or
any financial asset, at a specified price on or before a specified date is known as a ‘Put option’.
The owner makes a profit provided he buys at a lower current price and sells at a higher future
price. Hence, no option will be exercised if the future price does not increase.
Put and calls are almost always written on equities, although occasionally preference shares,
bonds and warrants become the subject of options.
4. SWAPS -
Swaps are transactions which obligates the two parties to the contract to exchange a series of
cash flows at specified intervals known as payment or settlement dates. They can be regarded as
portfolios of forward's contracts. A contract whereby two parties agree to exchange (swap)
payments, based on some notional principle amount is called as a ‘SWAP’. In case of swap, only
the payment flows are exchanged and not the principle amount. The two commonly used swaps
are:
a. INTEREST RATE SWAPS :
Interest rate swaps is an arrangement by which one party agrees to exchange his series of fixed
rate interest payments to a party in exchange for his variable rate interest payments. The fixed
rate payer takes a short position in the forward contract whereas, the floating rate payer takes a
long position in the forward contract.

45. b. CURRENCY SWAPS :
Currency swaps is an arrangement in which both the principle amount and the interest on loan in
one currency are swapped for the principle and the interest payments on loan in another
currency. The parties to the swap contract of currency generally hail from two different
countries. This arrangement allows the counter parties to borrow easily and cheaply in their
home currencies. Under a currency swap, cash flows to be exchanged are determined at the spot
rate at a time when swap is done. Such cash flows are supposed to remain unaffected by
subsequent changes in the exchange rates.
c. FINANCIAL SWAP :
Financial swaps constitute a funding technique which permit a borrower to access one market
and then exchange the liability for another type of liability. It also allows the investors to
exchange one type of asset for another type of asset with a preferred income stream.
The other kind of derivatives, which are not, much popular are as follows :
5. BASKETS -
Baskets options are option on portfolio of underlying asset. Equity Index Options are
most popular form of baskets.

46. 6. LEAPS -
Normally option contracts are for a period of 1 to 12 months. However, exchange may
introduce option contracts with a maturity period of 2-3 years. These long-term option contracts
are popularly known as Leaps or Long term Equity Anticipation Securities.
7. WARRANTS -
Options generally have lives of up to one year, the majority of options traded on options
exchanges having a maximum maturity of nine months. Longer-dated options are called warrants
and are generally traded over-the-counter.
8. SWAPTIONS -
Swaptions are options to buy or sell a swap that will become operative at the expiry of the
options. Thus a swaption is an option on a forward swap. Rather than have calls and puts, the
swaptions market has receiver swaptions and payer swaptions. A receiver swaption is an option
to receive fixed and pay floating. A payer swaption is an option to pay fixed and receive floating.

47. F u t u r e s M a r k e t F o r w a r d M a r k e t
Margin deposits are to be required of
all participants.
Typically, no money changes hands
until delivery, although a small margin
deposit might be required of non-dealer
customers on certain occasions.
Contract terms are standardised with all
buyers and sellers negotiating only with
respect to price.
All contract terms are negotiated
privately by the parties.
Non-member participants deal through
brokers (exchange members who
represent them on the exchange floor)
Participants deal typically on a
principal-to-principal basis.
Participants include banks,
corporations, financial institutions,
individual investors, and speculators.
Participants are primarily institutions
dealing with one other and other
interested parties dealing through one or
more dealers.
The clearing house of the exchange
becomes the opposite side to each
cleared transactions; therefore, the
credit risk for a futures market
participant is always the same and there
is no need to analyse the credit of other
market participants.
A participant must examine the credit
risk and establish credit limits for each
opposite party.

48. Settlements are made daily through the
exchange clearing house. Gains on
open positions may be withdrawn and
losses are collected daily.
Settlement occurs on date agreed upon
between the parties to each transaction.
Long and short positions are usually
liquidated easily.
Forward positions are not as easily
offset or transferred to the other
participants.
Settlements are normally made in cash,
with only a small percentage of all
contracts resulting actual delivery.
Most transactions result in delivery.
A single, round trip (in and out of the
market) commission is charged. It is
negotiated between broker and
customer and is relatively small in
relation to the value of the contract.
No commission is typically charged if
the transaction is made directly with
another dealer. A commission is
charged to born buyer and seller,
however, if transacted through a broker.
Trading is regulated. Trading is mostly unregulated.
The delivery price is the spot price. The delivery price is the forward price.

49. CHAPTER – 4
 Participants in derivatives market
 role of derivatives

50. CHAPTER 4
PARTICIPANTS IN THE DERIVATIVES MARKET :
The participants in the derivatives market are as follows:

51. A.} TRADING PARTICIPANTS :
1.] HEDGERS –
The process of managing the risk or risk management is called as hedging. Hedgers are those
individuals or firms who manage their risk with the help of derivative products. Hedging does
not mean maximising of return. The main purpose for hedging is to reduce the volatility of a
portfolio by reducing the risk.
2.] SPECULATORS –
Speculators do not have any position on which they enter into futures and options Market i.e.,
they take the positions in the futures market without having position in the underlying cash
market. They only have a particular view about future price of a commodity, shares, stock index,
interest rates or currency. They consider various factors like demand and supply, market
positions, open interests, economic fundamentals, international events, etc. to make predictions.
They take risk in turn from high returns. Speculators are essential in all markets – commodities,
equity, interest rates and currency. They help in providing the market the much desired volume
and liquidity.
3.] ARBITRAGEURS –
Arbitrage is the simultaneous purchase and sale of the same underlying in two different markets
in an attempt to make profit from price discrepancies between the two markets. Arbitrage

52. involves activity on several different instruments or assets simultaneously to take advantage of
price distortions judged to be only temporary.
Arbitrage occupies a prominent position in the futures world. It is the mechanism that keeps
prices of futures contracts aligned properly with prices of underlying assets. The objective is
simply to make profits without risk, but the complexity of arbitrage activity is such that it is
reserved to particularly well-informed and experienced professional traders, equipped with
powerful calculating and data processing tools. Arbitrage may not be as easy and costless as
presumed.
B.} INTERMEDIARY PARTICIPANTS :
4.] BROKERS –
For any purchase and sale, brokers perform an important function of bringing buyers and sellers
together. As a member in any futures exchanges, may be any commodity or finance, one need
not be a speculator, arbitrageur or hedger. By virtue of a member of a commodity or financial
futures exchange one get a right to transact with other members of the same exchange. This
transaction can be in the pit of the trading hall or on online computer terminal. All persons
hedging their transaction exposures or speculating on price movement, need not be and for that
matter cannot be members of futures or options exchange. A non-member has to deal in futures
exchange through member only. This provides a member the role of a broker. His existence as a
broker takes the benefits of the futures and options exchange to the entire economy all
transactions are done in the name of the member who is also responsible for final settlement and
delivery. This activity of a member is price risk free because he is not taking any position in his
account, but his other risk is clients default risk. He cannot default in his obligation to the

53. clearing house, even if client defaults. So, this risk premium is also inbuilt in brokerage
recharges. More and more involvement of non-members in hedging and speculation in futures
and options market will increase brokerage business for member and more volume in turn
reduces the brokerage. Thus more and more participation of traders other than members gives
liquidity and depth to the futures and options market. Members can attract involvement of other
by providing efficient services at a reasonable cost. In the absence of well functioning broking
houses, the futures exchange can only function as a club.
5.] MARKET MAKERS AND JOBBERS –
Even in organised futures exchange, every deal cannot get the counter party immediately. It is
here the jobber or market maker plays his role. They are the members of the exchange who takes
the purchase or sale by other members in their books and then square off on the same day or the
next day. They quote their bid-ask rate regularly. The difference between bid and ask is known
as bid-ask spread. When volatility in price is more, the spread increases since jobbers price risk
increases. In less volatile market, it is less. Generally, jobbers carry limited risk. Even by
incurring loss, they square off their position as early as possible. Since they decide the market
price considering the demand and supply of the commodity or asset, they are also known as
market makers. Their role is more important in the exchange where outcry system of trading is
present. A buyer or seller of a particular futures or option contract can approach that particular
jobbing counter and quotes for executing deals. In automated screen based trading best buy and
sell rates are displayed on screen, so the role of jobber to some extent. In any case, jobbers
provide liquidity and volume to any futures and option market.
C.} INSTITUTIONAL FRAMEWORK :

54. 6.] EXCHANGE –
Exchange provides buyers and sellers of futures and option contract necessary infrastructure to
trade. In outcry system, exchange has trading pit where members and their representatives
assemble during a fixed trading period and execute transactions. In online trading system,
exchange provide access to members and make available real time information online and also
allow them to execute their orders. For derivative market to be successful exchange plays a very
important role, there may be separate exchange for financial instruments and commodities or
common exchange for both commodities and financial assets.
7.] CLEARING HOUSE –
A clearing house performs clearing of transactions executed in futures and option exchanges.
Clearing house may be a separate company or it can be a division of exchange. It guarantees the
performance of the contracts and for this purpose clearing house becomes counter party to each
contract. Transactions are between members and clearing house. Clearing house ensures
solvency of the members by putting various limits on him. Further, clearing house devises a
good managing system to ensure performance of contract even in volatile market. This provides
confidence of people in futures and option exchange. Therefore, it is an important institution for
futures and option market.
8.] CUSTODIAN / WARE HOUSE –
Futures and options contracts do not generally result into delivery but there has to be smooth and
standard delivery mechanism to ensure proper functioning of market. In stock index futures and

55. options which are cash settled contracts, the issue of delivery may not arise, but it would be there
in stock futures or options, commodity futures and options and interest rates futures. In the
absence of proper custodian or warehouse mechanism, delivery of financial assets and
commodities will be a cumbersome task and futures prices will not reflect the equilibrium price
for convergence of cash price and futures price on maturity, custodian and warehouse are very
relevant.
9.] BANK FOR FUND MOVEMENTS –
Futures and options contracts are daily settled for which large fund movement from members to
clearing house and back is necessary. This can be smoothly handled if a bank works in
association with a clearing house. Bank can make daily accounting entries in the accounts of
members and facilitate daily settlement a routine affair. This also reduces a possibility of any
fraud or misappropriation of fund by any market intermediary.
10.] REGULATORY FRAMEWORK –
A regulator creates confidence in the market besides providing Level playing field to all
concerned, for foreign exchange and money market, RBI is the regulatory authority so it can take
initiative in starting futures and options trade in currency and interest rates. For capital market,
SEBI is playing a lead role, along with physical market in stocks, it will also regulate the stock
index futures to be started very soon in India. The approach and outlook of regulator directly
affects the strength and volume in the market. For commodities, Forward Market Commission is
working for settling up national National Commodity Exchange.

56. ROLE OF DERIVATIVES :
Derivative markets help investors in many different ways :
1.] RISK MANAGEMENT –
Futures and options contract can be used for altering the risk of investing in spot market. For
instance, consider an investor who owns an asset. He will always be worried that the price may
fall before he can sell the asset. He can protect himself by selling a futures contract, or by buying
a Put option. If the spot price falls, the short hedgers will gain in the futures market, as you will
see later. This will help offset their losses in the spot market. Similarly, if the spot price falls
below the exercise price, the put option can always be exercised.
Derivatives markets help to reallocate risk among investors. A person who wants to reduce risk,
can transfer some of that risk to a person who wants to take more risk. Consider a risk-averse
individual. He can obviously reduce risk by hedging. When he does so, the opposite position in
the market may be taken by a speculator who wishes to take more risk. Since people can alter
their risk exposure using futures and options, derivatives markets help in the raising of capital.
As an investor, you can always invest in an asset and then change its risk to a level that is more
acceptable to you by using derivatives.
2.] PRICE DISCOVERY –

57. Price discovery refers to the markets ability to determine true equilibrium prices. Futures prices
are believed to contain information about future spot prices and help in disseminating such
information. As we have seen, futures markets provide a low cost trading mechanism. Thus
information pertaining to supply and demand easily percolates into such markets. Accurate
prices are essential for ensuring the correct allocation of resources in a free market economy.
Options markets provide information about the volatility or risk of the underlying asset.
3.] OPERATIONAL ADVANTAGES –
As opposed to spot markets, derivatives markets involve lower transaction costs. Secondly, they
offer greater liquidity. Large spot transactions can often lead to significant price changes.
However, futures markets tend to be more liquid than spot markets, because herein you can take
large positions by depositing relatively small margins. Consequently, a large position in
derivatives markets is relatively easier to take and has less of a price impact as opposed to a
transaction of the same magnitude in the spot market. Finally, it is easier to take a short position
in derivatives markets than it is to sell short in spot markets.
4.] MARKET EFFICIENCY –
The availability of derivatives makes markets more efficient; spot, futures and options markets
are inextricably linked. Since it is easier and cheaper to trade in derivatives, it is possible to
exploit arbitrage opportunities quickly and to keep prices in alignment. Hence these markets help
to ensure that prices reflect true values.
5.] EASE OF SPECULATION –

58. Derivative markets provide speculators with a cheaper alternative to engaging in spot
transactions. Also, the amount of capital required to take a comparable position is less in this
case. This is important because facilitation of speculation is critical for ensuring free and fair
markets. Speculators always take calculated risks. A speculator will accept a level of risk only if
he is convinced that the associated expected return, is commensurate with the risk that he is
taking.

59. CHAPTER – 5
 HOW BANKS USE DERIVATIVES
• ASSET liability management

60. CHAPTER 5
HOW BANKS USE DERIVATIVES :

61. ASSET LIABILITY MANAGEMENT -
Banks have traditionally taken deposits from their customers and put those deposits to work as
loans. Because the deposits and the loans are dominated in the same currency, this activity has no
associated foreign exchange risk. But it does limit banks to lending to customers which need to
borrow in the currencies which the banks have available on deposits.
If a bank is asked to lend to a customer in a currency other than one of those it has on deposits it
creates a currency exposure for the bank. Suppose a customer wants to borrow EUROS from a
US Bank for 5 years and that the US bank has no natural source of EUROS. It is possible for the
banks to cover this exposure in the forward market by selling EUROS forwards and buying US
dollars. The transaction costs associated with this, in particular the bid / offer spread in the
medium term foreign exchange forward market, would make the resultant cost of the loan
prohibitively expensive for the borrower.
Currency swaps provide an economic alternative to this problem for banks. In order to cover the
exposure created by a loan to a customer in EUROS funded by a bank’s deposit in US dollar, a
bank could receive fixed rate US dollars in a currency swap and pay fixed rate EUROS.
One of the consequences of the development of the currency swap market is that banks now
often make much more competitive medium term forward foreign exchange prices than they
used to. Most banks quote forward foreign exchange and currency swap prices from the same
desk and increases liquidity in the latter has improved liquidity in the former. Banks therefore,
need no longer restrict their lending activities to the currencies in which they have natural
deposits. They are free to fund themselves in the most competitively priced currency and to lend

62. to their customers in the currency of the customer’s preference, using a currency swap as an asset
and liability matching tool
The “Normal yield curve”, reflects that it is much easier for banks to borrow at the short end of
the curve than the long end. This means that banks can fund themselves much more effectively
in the inter bank market in maturities such as the overnight, tom / next (overnight from
tomorrow, or tomorrow to the next day), spot / next, one week, one month, three months and six
months than they can in maturities such as five years or 20 years.
With the development of the swaps market it is possible for banks to satisfy their customers
demands for fixed rate funding while ensuring that the banks assets and liabilities are matched.
Suppose a bank has a customer who needs 5 years fixed rate funds. Let us say that the bank
finances in this loan in the interbank market at 3 month LIBOR. The bank now has a 3 month
liability and a 5 year asset (Figure 1).

63. The bank is short floating rate interest at 3 month LIBOR and long fixed rate interest at the rate
at which it lends to its customer. This is called the asset liability mismatch. So in order to hedge
its position the banks needs to match its exposure to 3 month LIBOR by receiving on a floating
rate basis in an interest rate swap, and match its exposure on a fixed rate basis by paying a fixed
rate in a interest rate swap. This is a hedge which is ideally suited to an interest rate swap which
the bank receives a floating rare of interest and pays a fixed rare (Figure 2).
This structure has the benefit for the bank that it eliminates the bank’s exposure to interest rate
risk. The bank can no longer profit from a fall in interest rates but it cannot lose money on its
asset and liability mismatch as a result of an increase in rates. The bank will make or lose money
based on its pricing of the credit risk in the transaction and its overall loan exposure rather than
on its ability to forecast interest rates. Hence the interest rate swaps provide banks with an
opportunity to change their risks from interest rate to credit.

65. CHAPTER – 6
 CASE STUDIES
• hedging interest rate risk
• Hedging foreign exchange risk

66. CHAPTER 6
CASE STUDIES :

67. CASE STUDY 1
Hedging interest rate risk
Scenario
A major aircraft manufacturer has decided to replace his mainframe computer. The cost after
trade in is $ 10 million, payable on delivery.
Delivery
Mid December, 2006.
Funding
A projected cash flow short fall will create a $ 10 million borrowing requirement.
Borrowing Rate
LIBOR + 50 Basis points

68. Outlook
The treasurer is worried that the central bank’s future policy directions will lead to an increase in
short term rates.
Market Conditions
Current LIBOR - 8.38 %
Euro-Dollar Options On Futures :
December 91.25 (implied rate of 8.75%) Put, Premium of .25
December 91.00 (implied rate of 9.00%) Put, Premium of .15
Strategy
The treasurer buys the December Put Option with a strike price of 91.25 (implied rate of 8.75%),
which allows the manufacturer to enter into a Euro – Dollar futures contract for a premium price
of .25. the notional principal, that is the size of the contract is $ 1 million, so ten contracts are
taken to cover the full short-term borrowing cost. The put will make money only if the
underlying future falls below the strike price less the price paid for the option. Remember, the
Euro-Dollar future is quoted as an index on a base of 100, a lower price means a higher rate of
interest

69. Results
In Mid-December, depending upon how the LIBOR rate has changed, the treasurer will use or
not use the put option on the future which was purchased. If the cost of short-term borrowing has
remained the same or declined, the put option will expire worthless. The money expended upon
the premium, of 0.25 % per $ 1 million contract, will have been lost. If, however, interest rates
were to rise, the put option contract on the Euro-Dollar future will be exercised. If, for example,
Euro – Dollar Rates rise to 10.76% (89.10 on the index) which would have given the treasurer a
borrowing cost of 11.26% (LIBOR + 50 bases points), the Put would be utilised, exercising the
right to sell the option on the future at the strike price of 91.25, for an intrinsic value of 2.1 (Or
2% in interest terms).
The gain in value on the Put options contract compensates for the increased cost of borrowing on
the LIBOR Rate. The risk of funding the new mainframe computer has been managed.
CASE STUDY 2

70. Hedging foreign exchange rate risk
Scenario
An American manufacturer of clothing imports fabric from the United Kingdom. In 6 months
time, in anticipation of the 2005-06 winter season, he will need to purchase 1 million Pounds
Sterling, in order to pay for the desired imports, in order for his finished goods to be competitive
and ensure adequate margins, the exchange rate must not fluctuate significantly. A weakening of
the US dollar by more than 5% may create problems in terms of price competitiveness and profit
margins.
Delivery
In Mid June, 2005, the manufacturer is scheduled to receive and pay for the imports.
Funding
The manufacturer has no funding exposure as the imports will be paid from working capital.
Exchange Rate

71. The present rate is STG/ USD = 1.50, which is satisfactory with respect to commercial
objectives, but a weakening of more than 5% will result in diminished margins or a non
competitive position.
Outlook
The manufacturer is worried that because of declining rates of interests and the current account
deficits, the US dollar may waken against the Pound Sterling, from its current rate of 1.50.
Market Conditions
Current spot rate - STG/USD = 1.50
June calls @ strike price of STG/USD = $1.51, premium of 2.50% per contract, that is 4 US
cents.
June calls @ Strike price of STG/USD = $1.52, premium of 2.00% per contract, that is 3 US
cents.
Strategy

72. The manufacturer buys one call option contract with a Strike or Exercise price of 1.51. If the US
dollar weakens the call contract will be used to buy the Pounds – Sterling at the set price. If, the
US dollar stays the same or strengthens, the contract will expire worthless and the premium paid
for the option will have been lost.
Results
In June 2005, the Us dollar does weaken and the new spot exchange rate is STG/USD = 1.60.
Hence, the call option at 1.51 has intrinsic value of 9 US cents. Instead of the 1 million Pound
Sterling required by the manufacturer costing 1.6 million US dollars, the exercise of the call
contract will net $ 90000 US ( $ 1.6 million – $ 1.51 million).
After subtracting the price of the premium of 2.5%, the net gain will be $ 50000 US ( $ 1.6
million – $ 1.55 million), which partially off-sets the depreciation in the US Dollar exchange
Rate, and is within the manufacturer’s target range of 5% to remain competitive on pricing.
Through this hedging technique the underlying commercial objective will be ensured. If the US
Dollar exchange rate had not weakened, the expenditure on the premium would still have kept
his net cost of the imports within the self imposed 5% competitive range.

73. RECOMMENDATIONS
 RBI should play a greater role in supporting derivatives.
 Derivatives market should be developed in order to keep it at par with other
derivative markets in the world.
 Speculation should be discouraged.
 There must be more derivative instruments aimed at individual investors.
 SEBI should conduct seminars regarding the use of derivatives to educate
individual investors.

74. BIBLIOGRAPHY :
BOOKS
 Futures markets – Sunil. K. Parameswaran
 Understanding futures market – Robert. W. Klob
 Derivatives Market in India – Susan Thomas
 Financial Derivatives – V. K. Bhalla
 Financial Services and Markets – Dr. S. Guruswamy

75.  Futures and Options – D. C. Gardner
INTERNET
 www.cxotoday.com
 www.indiainfoline.com
 www.indiamart.com
ABBREVIATION
A
AMEX - American Stock Exchange.

76. B
BSE - Bombay Stock Exchange.
C
CHE - Calcutta Hessian Exchange Ltd.
CBOE - Chicago Board options Exchange.
CBOT - Chicago Board of Trade.
CEBB - Chicago Egg and Butter Board.
CME - Chicago Mercantile Exchange.
CPE - Chicago Produce Exchange.
I

77. IMM - International Monetary Market.
L
LIBOR - London Inter Bank Offer Rate.
LEAPS - Long term Equity Anticipation Securities.
M
MCX – Multi Commodity Exchange
MIBOR - Mumbai Inter Bank Offer Rate.
N
NCDX – National Commodities and Derivatives Exchange
NSE - National Stock Exchange.

78. O
OTC - Over the counter.
P
PHLX - Philadelphia Stock Exchange.
S
SIMEX - Singapore International Monetary Exchange.
S&P - Standard and Poor.
SC(R) A - Securities Contracts (Regulation) Act, 1956.