This document presents information on derivatives. It defines derivatives as financial contracts derived from underlying assets and discusses how they are used for price discovery, risk management, and market efficiency. The document outlines different types of derivatives including futures, options, swaps, forwards, and money market derivatives. It explains that futures contracts obligate buyers and sellers while options contracts provide rights to buy or sell assets, and discusses how various derivatives are used for hedging, speculation, and managing risks.

1. PRESENTED BY
Bhumika Shetty
Debangshu Das
Neha Naidu
Nissi Shelke
Govind Varma
Cindrella D'souza
Ayush Gadiya
DERIVATIVES

2. PRESENTATION OUTLINE
INTRODUCTION
FUTURE AND
OPTIONS
MONEY MARKET
CONCLUSION

3. DERIVATES
• Derivatives are financial contracts
that derive their value from an
underlying asset.
• The variables underlying derivatives
are the prices of traded assets.
• Derivatives are the most modern
financial tools for hedging risk.
IMPORTANT DERIVATIVE SECURITIES
1.Forward Contracts
2.Futures Contracts
3.Options

4. PRICE DISCOVERY: Derivatives help discover market prices for
underlying assets.
RISK MANAGEMENT: They provide a way to manage financial risk and
exposure to market volatility.
IMPROVE MARKET EFFICIENCY: They help improve market
efficiency for the underlying assets.
REDUCE TRANSACTION COSTS: They reduce the costs of trading
underlying assets.
RELOCATE RISKS: Derivatives help move risk from one party to
another.
IMPORTANCE

5. TYPES OF DERIVATIVES
FUTURES
OPTIONS
SWAPS
HEDGING

6. FUTURES
• Futures are contracts that obligate
the buyer or seller to buy or sell an
underlying asset at a specific price
and date in the future.
• They are used to hedge against
price fluctuations or to speculate
on future prices.

7. OPTIONS
• Options are contracts that give the
buyer the right, but not the
obligation, to buy or sell an
underlying asset at a specific price
and date in future.
• They can be used for hedging or
speculation, and there are two
types: call options and put options.

8. CALL OPTION
Buyer has the right to buy an
underlying asset at a
predetermined price before
or on the expiration date.
TYPES OF OPTIONS
PUT OPTION
Buyer has the right to sell an
underlying asset at a
predetermined price before
or on the expiration date.

9. IMPORTANT TERMS USED IN
OPTION CONTRACTS
OPTION PREMIUMS
Obligation in return
for some
compensation.
EXPIRATION
Definite
predetermined
maturity date.
BUYERS AND
SELLERS
Buyer is an option
holder and Seller
desires partial price
protection.
STRIKE PRICE
The price at which
the underlying
commodity can be
exchanged.
UNDERLYING
COMMODITY
The future contract
for the commodity.

10. OPTIONS
• Options confer rights but not
the obligation to do the same.
• Payment is involved and
premium paid on options is non-
refundable.
• Options are smaller in value.
• Options set a range within or
outside which a position proves
profitable.
• The buyer can exercise option
any time prior to the expiry date.
• Futures create an obligation to
make or take delivery at some
future date.
• No payment is involved for
entering into a future contract.
• Future contracts are usually
larger in value.
• They establish a price.
• The parties of the contract must
perform at the settlement date.
FUTURE

11. Money market options are options on money market
instruments.They are used for hedging and short-term
investment purposes.
Money market futures are short-term contracts on money
market instruments like treasury bills, commercial paper,
and certificates of deposit.
MONEY MARKET
FUTURES AND OPTIONS

12. HEDGING
SWAPS
• Risk Management strategy employed to
offset losses in investments by taking an
opposite position in a related asset.
• Balance supports any type of investment.
• Protects individual finances from being
exposed.
FORWARD CONTRACTS
• A derivative security which is an
agreement to buy or sell an asset at a
certain future time for a certain price
• A forward contract is settled at maturity.
• Its a contract to buy or sell a specified
quantity of an asset at a future date.
• Swaps are agreements between two parties
to exchange cash flows based on different
financial instruments.
• Application of Swaps-
• For hedging of risks
• As a tool for accessing previously
unavailable markets.

13. CONCLUSION
Derivatives are financial contracts that derive their
value from an underlying asset.They are important for
price discovery, risk management, and improving
market efficiency.Derivatives include futures, options,
swaps, and forward contracts.Options are contracts
that give the buyer the right but not the obligation to
buy or sell an underlying asset at a predetermined
price and time.Futures contracts offer the buyer the
obligation to buy or sell the underlying asset at a
predetermined price and time, while options
contracts offer the right but not the obligation to buy
or sell the asset.Money market futures and options
are short-term contracts used for hedging and short-
term investment purposes.Forward contracts and
swaps are used for hedging, speculative trading, and
reducing exposure to market risks.