FINANCIAL DERIVATIVE

RIYA KUMARI (MBA/10035/2016)

PRIYA AGARWAL (MBA/10040/2016)
SWETA (MBA/10084/2016)
APOORVA GUPTA (MBA/10083/2016)
POINT TO COVER….
• About derivative.
• Participants.
• Functions and types.
• ICICI BANK.
• SBI BANK.
• HDFC BANK.
• AXIS BANK.
• SUMMARY.
• CONCLUSION.
What is derivative?
• Derivative is a financial instrument that derives its value from an
underlying asset.
• According to Wikipedia,” a derivative is a financial instrument -
or more simply, an agreement between two people or two parties
- that has a value determined by the price of something else
(called the underlying). It is a financial contract with a value
linked to the expected future price movements of the asset it is
linked to - such as a share or a currency”.
Underlying/Underlying Asset
Index
Individual Stock
Commodities: Metals, Minerals,
Agricultural Commodities
Interest Rate
Contracts
Forex
Weather
Climate Control
PARTICIPANTS:
• HEDGERS: Hedgers face risk associated with the price of an asset. They use futures or
options markets to reduce or eliminate this risk.

• SPECULATORS: Speculators wish to bet on future movements in the price of an asset.

Futures and options contracts can give them an extra leverage; that is, they can increase
both the potential gains and potential losses in a speculative venture.

• ARBITRAGERS : Arbitrageurs are in business to take of a discrepancy between prices in two

different markets, if, for, example, they see the futures price of an asset getting out of line
with the cash price, they will take offsetting position in the two markets to lock in a profit.
FUNCTION OF DERIVATIVES MARKETS:
• Prices in an organized derivatives market reflect the perception of market participants about
the future and lead the price of underlying to the perceived future level.
• Derivatives market helps to transfer risks from those who have them but may not like them to
those who have an appetite for them.
• Derivatives trading acts as a catalyst for new entrepreneurial activity.
• Derivatives markets help increase saving and investment in long run.
Types of derivative…
FUTURE
CONTRACT

FORWARD
SWAP DERIVATIVE
CONTRACT

OPTION
FORWARD CONTRACT
• In finance, a forward contract or simply a forward is a non-standardized contract between
two parties to buy or to sell an asset at a specified future time at a price agreed upon today,
making it a type of derivative instrument
FUTURE CONTRACT
• A futures contract is a legal agreement, generally made on the trading floor of
a futures exchange, to buy or sell a particular commodity or financial instrument at a
predetermined price at a specified time in the future. Futures contracts are standardized to
facilitate trading on a futures exchange and, depending on the underlying asset being traded,
detail the quality and quantity of the commodity.
OPTIONS
• An options contract is an agreement between a buyer and seller that gives the purchaser of
the option the right to buy or sell a particular asset at a later date at an agreed upon
price. Options contracts are often used in securities, commodities, and real estate
transactions.
SWAP
• An interest rate swap is a contract between two parties where one party agrees to exchange
a stream of payments based on a fixed interest rate with a stream of payments based on a
floating interest rate for a specified term to maturity.
ICICI BANK
• Industrial credit and investment corporation of india.
• Founded in 1955 by as a joint venture of world bank.
• Launch internate banking operation in 1998.
• It is india second largest bank .
• In 2000 , it is first bank listed on NSE and BSE.
Date Open Price future price
25-Oct-17 293.2 294.25
24-Oct-17 263.25 266.4
23-Oct-17 258.35 262.45
19-Oct-17 259.6 257.6 future price
18-Oct-17 268.4 270
17-Oct-17 274.75 274.15 300
16-Oct-17 274.6 275.1 290
13-Oct-17 267.6 272.4
12-Oct-17 267.6 268 280
11-Oct-17 271.1 272.2
10-Oct-17 271.85 273.8 270
09-Oct-17 273.35 274.5
260
06-Oct-17 272.15 273.85 near future price
05-Oct-17 276 277.36 250
04-Oct-17 279.25 281
03-Oct-17 279.5 280.2 240
29-Sep-17 277.45 276.6
230
28-Sep-17 275.95 276.1
27-Sep-17 284.75 285.62
26-Sep-17 279.5 280
25-Sep-17 278.95 279.25
22-Sep-17 283.6 283.9
OBSERVATION AND FINDINGS
• If a person buys 1 lot i.e. 2750 futures of ICICI BANK on 25th oct , 2017 and sells
then he will get a profit of 294.25-293.2= 1.05 per share (1.05*2750=2887.5).
• If he sells on 19th oct, 2017 then he will get a loss of 257.6-259.6= -2 per share
(-2*2750= -5500).
SBI
• Established in 1806 at calcutta as bank of india.
• Oldest bank of Indian sub-continent .
• Head quarter in mumbai .
• Largest branch network in india with 16000 branches .
Date Open Price future price
25-Oct-17 279.85 280.05
24-Oct-17 246 254.65
23-Oct-17 244 245.9
19-Oct-17 243.8 242.3
18-Oct-17 246 245.25
17-Oct-17 252.75 252.1 future price
16-Oct-17 254.6 252.95
290
13-Oct-17 251.1 253.15
12-Oct-17 252 253.5 280
11-Oct-17 257.15 251.95
270
10-Oct-17 256.85 257.5
09-Oct-17 256.8 257 260
06-Oct-17 252.15 253.1 250
05-Oct-17 253.7 253.9 future near price
240
04-Oct-17 251.65 251.85
03-Oct-17 256.4 257 230
29-Sep-17 254.7 255.8
220
28-Sep-17 250.25 251.5
27-Sep-17 259.9 261.54
26-Sep-17 258.5 259.8
25-Sep-17 261.5 262.46
22-Sep-17 267.25 267.9
OBSERVATION AND FINDINGS
• If a person buys 1 lot i.e. 3000 futures of SBI BANK on 19th 0ct, 2017 and sell then
he will get a loss of 242.3-243.8= -1.5 per share ( -1.5*3000 = -4500).
• If he sells on 6th oct, 2017 then he will get a profit of 253.1-251.15 = 1.95 per
share (1.95*3000 = 5850).
HDFC BANK
• Housing development finance corporation .
• Founded in 1977 by Hasmukh Bhai Parakh.
• Incorporated in august 1994.
• Registered office in Mumbai .
• India’s largest housing finance company.
Date Open Price future price
25-Oct-17 1736.9 1740.5
24-Oct-17 1725 1725.8
23-Oct-17 1751.8 1750.25
19-Oct-17 1751 1747.45
18-Oct-17 1759.75 1761.25 future price
17-Oct-17 1760.8 1759.75
16-Oct-17 1771 1854.6
1900
13-Oct-17 1752.1 1850.95
12-Oct-17 1752.15 1760.25 1850
11-Oct-17 1750 1751.95
10-Oct-17 1748.55 1801.2 1800
09-Oct-17 1739.9 1740.25
05-Oct-17 1798 1800
04-Oct-17 1795 1796 1750
future near price
03-Oct-17 1807.9 1808.45
02-Oct-17 1808 1809.3 1700
29-Sep-17 1800.1 1801.2
28-Sep-17 1774 1775.25
1650
27-Sep-17 1796 1790
26-Sep-17 1789.05 1822.8
25-Sep-17 1822.45 1821
22-Sep-17 1834.8 1836.2
OBSERVATION AND FINDINGS
• If a person buys 1 lot i.e. 500 futures of HDFC BANK on 19th 0ct, 2017 and sell then
he will get a loss of 1747.45 - 1751= -3.55 per share ( -3.55*500 = -1775).
• If he sells on 10th oct, 2017 then he will get a profit of 1801.2 – 1748.55 = 52.65
per share (52.65*500 = 26325).
AXIS BANK

• Third largest private sector bank in India .

• Founded -1993.
• Old name – UTI BANK .
• Head quarter – MUMBAI.
• Registered office – AHMADABAD .
• Branches – 2904.
Date Open price Future price
25-Oct-17 468.15 472.65
24-Oct-17 451.65 451.6
23-Oct-17 458.65 449.6
19-Oct-17 463.9 459.95
18-Oct-17 488 464.15 Future price
17-Oct-17 520.95 512.8
540
16-Oct-17 530.35 520
13-Oct-17 524.25 529.1 520
12-Oct-17 516.3 524.75
11-Oct-17 519.9 515.4 500
10-Oct-17 507.5 514.2
480
09-Oct-17 503.4 505.6
06-Oct-17 503 503 460
05-Oct-17 506.65 500.85 Future near price
04-Oct-17 507.5 505.6 440
03-Oct-17 514 509.3
420
29-Sep-17 511.1 508.8
28-Sep-17 507.85 511.45 400

20-Oct-17
30-Sep-17
02-Oct-17
04-Oct-17
06-Oct-17
08-Oct-17
10-Oct-17
12-Oct-17
14-Oct-17
16-Oct-17
18-Oct-17

22-Oct-17
24-Oct-17
22-Sep-17
24-Sep-17
26-Sep-17
28-Sep-17
27-Sep-17 513.4 505.95
26-Sep-17 500 511.6
25-Sep-17 504 501.35
22-Sep-17 509.4 504.95
OBSERVATION AND FINDINGS
• If a person buys 1 lot i.e. 1200 futures of AXIS BANK on 12th 0ct, 2017 and sell
then he will get a loss of 524.75 – 525.1 = -0.35 per share ( -0.35*1200= -420).
• If he sells on 12th oct, 2017 then he will get a profit of 525.9 – 525.1 = 0.8 per
share (0.8*1200 = 960).
Summary
• Derivatives market is an innovation to cash market. Approximately its daily
turnover reaches to the equal stage of cash market. The average daily turnover
of the NSE derivative segments.
• In cash market the profit/loss of the investor depends on the market price of
the underlying asset. The investor may incur huge profits or he may incur Huge
losses. But in derivatives segment the investor enjoys huge profits with limited
downside.
• In cash market the investor has to pay the total money, but in derivatives the
investor has to pay premiums or margins, which are some percentage of total
contract.
• Derivatives are mostly used for hedging purpose.
• In derivative segment the profit/loss of the option writer purely depends on the
fluctuations of the underlying asset.
Conclusion…

• The future price of banks is moving along with the market price.
• If the buy price of the future is less than the settlement price, than the
buyer of a future gets profit.
• If the selling price of the future is less than the settlement price, than the
seller incur losses.