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    Derivatives Assignment-1

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    Harshitha
    The National Stock Exchange of India offers trading in three main types of derivative instruments: equity derivatives, currency derivatives, and commodity derivatives. Derivative instruments derive their value from an underlying asset and allow investors to speculate on future price movements without owning the asset. The main types of derivatives traded on NSE are futures contracts, options, and swaps.

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    Derivatives Assignment-1

    Uploaded by

    Harshitha
    17 views3 pages
    The National Stock Exchange of India offers trading in three main types of derivative instruments: equity derivatives, currency derivatives, and commodity derivatives. Derivative instruments derive their value from an underlying asset and allow investors to speculate on future price movements without owning the asset. The main types of derivatives traded on NSE are futures contracts, options, and swaps.

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    Derivatives market notes

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    Derivatives assignment-1

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    The National Stock Exchange of India offers trading in three main types of derivative instruments: equity derivatives, currency derivatives, and commodity derivatives. Derivative instruments derive their value from an underlying asset and allow investors to speculate on future price movements without owning the asset. The main types of derivatives traded on NSE are futures contracts, options, and swaps.

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    17 views3 pages

    Derivatives Assignment-1

    Uploaded by

    Harshitha
    The National Stock Exchange of India offers trading in three main types of derivative instruments: equity derivatives, currency derivatives, and commodity derivatives. Derivative instruments derive their value from an underlying asset and allow investors to speculate on future price movements without owning the asset. The main types of derivatives traded on NSE are futures contracts, options, and swaps.

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    © All Rights Reserved
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    of 3

    What are the different types of derivative

    instruments traded on NSE?


    Harshitha K

    (HU22MGMT0700190)

    The National Stock Exchange (NSE) of India offers trading in three main types of
    derivative instruments:
    1. Equity derivatives
    2. Currency derivatives
    3. Commodity derivatives

    What is Derivative?
    In simple terms, these financial instruments derive their value from an underlying
    asset or variable. This asset can be anything from stocks, bonds, commodities,
    currencies, or interest rates. The value of such instruments is dependent on the
    fluctuations in the price or value of the underlying asset. Essentially, they allow
    investors to speculate on the future price movements of these assets without
    actually owning them.

    The primary purpose of these instruments in financial markets is to manage and


    mitigate risks. Using them, investors can protect themselves against potential
    losses caused by adverse price movements in the underlying asset.

    They also serve as valuable tools for speculation and hedging strategies .
    Speculators aim to profit from anticipated price movements by taking contract
    positions. Hedgers, on the other hand, use these contracts to offset risks associated
    with their core business activities. For instance, a multinational company exposed
    to foreign exchange fluctuations can utilise currency contracts to hedge its
    currency risk and ensure stable cash flows.
    Types of Derivatives
    Futures Contract
    One of the most common types of derivatives is futures contracts.
    These agreements oblige the buyer to purchase an asset or the seller to
    sell an asset at a predetermined price and date in the future. Futures
    contracts are standardized and traded on exchanges, allowing investors to
    speculate on the future price movements of assets like commodities,
    currencies, and stock market indices.
    Options
    Options are another popular type. They give the holder the right, but not the
    obligation, to buy or sell an asset at a specified price within a specified period. Call
    options provide the right to buy, while put options provide the right to sell.
    Options offer flexibility, allowing investors to profit from rising and falling
    markets. They are commonly used for hedging purposes, risk management, and
    income generation through strategies like covered call writing.
    Swaps
    Swaps derivatives are specifically designed for managing risks and cash
    flows. In a swap, two parties agree to exchange cash flows or other variables, such
    as interest rates or currencies, over a predetermined period.

    For instance, an interest rate swap involves exchanging fixed interest payments for
    floating interest payments to hedge against interest rate fluctuations. Swaps are
    primarily used by institutional investors and companies to mitigate risks and tailor
    their financial exposures to their specific needs.
    Forwards
    Forwards are another type of derivative contract that allows two parties to
    agree on the future delivery of an asset at a specified price. Unlike futures
    contracts, forwards are typically customized and traded over the counter, meaning
    they are not standardized or traded on exchanges. Forwards are commonly used for
    hedging against price volatility.

    These various types of derivatives cater to different investment strategies


    and risk appetites. Futures and options are popular among speculators and traders
    seeking short-term profits from market movements.
    Swaps are favored by institutions and businesses aiming to manage risks and
    cash flows in a tailored manner. With their flexibility and customization,
    sophisticated investors often utilize forwards for specific hedging needs.

    CONCLUSION
    Derivatives may seem complex, but with a solid understanding of their
    purpose and mechanics, they can be useful for managing risk and achieving
    financial goals. As with any investment, it is crucial to do thorough research and
    seek guidance from a trusted financial advisor before making any decisions.

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