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What are Derivatives ? ... Off late, we have also seen the evolution of derivatives which do not derive their value from any financial instrument like credit derivatives or commodity derivatives or weather derivatives. ...
Derivatives are securities under the SC(R)A and hence the trading of derivatives is governed by the regulatory framework under the SC(R)A. ... Swaps
Why Derivatives ?
One of the most important uses of financial derivatives is risk management. Some types of risk are simple to manage with financial derivatives but others require custom solutions. ... Exchange Traded Financial Derivatives
Exchange Traded Financial Derivatives are fairly simple single instruments. ...
Social Role of Financial Derivatives
The derivatives market performs a number of economic functions:-
Prices in an organized derivatives market reflect the perception of market participants about the future and lead the prices of underlying to the perceived future level. The prices of derivatives converge with the prices of the underlying at the expiration of the derivative contract. Thus derivatives help in discovery of future as well as current prices. ...
The 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, due to their inherent nature, are linked to the underlying cash market. With the introduction of derivatives, the underlying market witnesses higher trading volumes because of participation by more players who would not otherwise participate for lack of an arrangement to transfer risk.
Approximate Word count = 1099
Approximate Pages = 4.4
(250 words per page double spaced)
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