useful for NISM certification and Pune University MBA Finance - F&O subject chapter one

1. INTRODUCTION
– F&O
CHAPTER ONE
By – Prof. Vinay Munde

2. Content of this Topic
Here’s what you’ll Learn:
1. Definition of Derivative,
2. Brief history of derivatives,
3. participants in derivative market,
4. Economic functions of derivative market,
5. Evolution of commodity market, currency, stocks and Interest rate derivatives,
6. Structure of derivative market- Forwards, Futures, Options, Swaps etc.
7. Future and Options trading strategies: Risk Management, Hedging, speculation and Arbitrage, Spread trading

3. Defination
Derivatives are financial
contracts, and their value is
determined by the value of an
underlying asset or set of assets.
Stocks, bonds, currencies,
commodities, and market indices
are all common assets

4. Brief History of Derivatives
13th to 17th
Centurey
Future delivery of items,
rice, grains etc. on the
basis of seasons
1982 Kanas City Board
After 1st Chicago Board of
option exchange, Kanas became
1st Stock Future Index
CBOT 1884 -1919
Chicago Board of Trade
facilated ‘Forward
Contract’ Later
“exchange traded i.e.
future contracts
1983 Futures
& Options
Chicago Board Options
Exchange (CBOE) introduced
option on stock indiceswith
the S&P 100® (OEX) and S&P
500® (SPXSM) Indices
A. C.
B. D.

5. Our history 19th
Centurey
India was No.
1 in future
contracts
1927
BSE
1992
SEBI
Bombay stock
Exchange
formed
12th April
1992 Security
Exchange
Board of India
formed

6. Our history
And still going
strong!
SEBI with 24
memebers formed
regulatory framwork
of Derivative market
According to Livemint - Equity
derivatives volumes on the National
Stock Exchange (NSE) hit a record
₹17,350 trillion Apr-Oct 2022, led
by proprietary and retail investors.
This compares with ₹16,952 trillion
for the whole of FY22.
1996 L.G.
Gupta
2023

7. 10,56,83,750
Demat Account holders
out of 150 Cr Indian
Populations

8. Participants in Derivatives market
Hedgers Risk Avioders
Arbitrageurs
buying and selling similar
instruments in different
markets
Speculators only aim is to make profit

9. Economic Functions of Derivatives markets
Money Tree
Speculataors
shift to
underlying
market
Higher
traders
volume
Transfer the
Risk
Perceptions
of market
participants
Catalyst to new
entrepreneurs

10. Evolutions of Currency Market
The evolution of India’s foreign exchange market can be connected to the country’s exchange rate
regulations, which have shifted from a par value system to a basket-peg and then to a managed float
exchange rate system over the last few decades1.
The origins of the Indian foreign exchange market can be traced back to 1978 when banks in India were
permitted to engage in intra-day foreign exchange trading. However, it was in the 1990s that the Indian
foreign exchange market saw far-reaching changes, coinciding with shifts in India’s currency regime2.
Between 1990-1993, the Indian Foreign Exchange Market shifted from a fixed exchange rate to a market-
determined currency regime3.
The introduction of currency futures trading effective August 29, 2008, on the NSE was a major milestone
in the evolution of the Indian financial markets4.

11. Structure of Derivative Market
Forward Contract
These are OTC, which
means they are not
regulated and are not
bound by specific trading
rules & regulations.
Future Contract
possess the right and
obligation to carry out
the contract as agreed
Option Contract
give the buyer the
right, but not the
obligation,
Swaps
Swaps are not traded
on the exchange
market. They are OTC

12. Future and Options trading
strategies:
● Risk Management,
● Hedging
● Speculation
● Arbitrage
● Spread trading

13. Thanks !