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Old April 9th, 2013, 06:14 PM
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Can you provide me the information for Financial Derivatives Notes MBA?

As you are looking for the MBA Financial Derivatives Notes, here I am uploading a PDF file having the same. You can use these notes in your studies. I have taken following content from the attachment:

Derivatives are also a kind of contract between two counterparties to exchange payments linked to the prices of underlying assets. Derivative can also be defined as a financial instrument that does not constitute ownership, but a promise to convey ownership. Examples are options and futures. The simplest example is a call option on a stock. In the case of a call option, the risk is that the person who writes the call (sells it and assumes the risk) may not be in business to live up to their promise when the time comes. In standardized options sold through the Options Clearing House, there are supposed to be sufficient safeguards for the small investor against this. The most common types of derivatives that ordinary investors are likely to come across are futures, options, warrants and convertible bonds. Beyond this, the derivatives range is only limited by the imagination of investment banks. It is likely that any person who has funds invested an insurance policy or a pension fund that they are investing in, and exposed to, derivatives-wittingly or unwittingly.

UNDERSTANDING DERIVATIVES The primary objectives of any investor are to maximize returns and minimize risks. Derivatives are contracts that originated from the need to minimize risk. The word ‘derivative’ originates from mathematics and refers to a variable, which has been derived from another variable. Derivatives are so called because they have no value of their own. They derive their value from the value of some other asset, which is known as the underlying. For example, a derivative of the shares of Infosys (underlying), will derive its value from the share price (value) of Infosys. Similarly, a derivative contract on soybean depends on the price of soybean. Derivatives are specialized contracts which signify an agreement or an option to buy or sell the underlying asset of the derivate up to a certain time in the future at a prearranged price, the exercise price. The contract also has a fixed expiry period mostly in the range of 3 to 12 months from the date of commencement of the contract. The value of the contract depends on the expiry period and also on the price of the underlying asset. For example, a farmer fears that the price of soybean (underlying), when his crop is ready for delivery will be lower than his cost of production. Let’s say the cost of production is Rs 8,000 per ton. In order to overcome this uncertainty in the selling price of his crop, he enters into a contract (derivative) with a merchant, who agrees to buy the crop at a certain price (exercise price), when the crop is ready in three months time (expiry period). In this case, say the merchant agrees to buy the crop at Rs 9,000 per ton. Now, the value of this derivative contract will increase as the price of soybean decreases and vice-a-versa. If the selling price of soybean goes down to Rs 7,000 per ton, the derivative contract will be more valuable for the farmer, and if the price of soybean goes down to Rs 6,000, the contract becomes even more valuable. This is because the farmer can sell the soybean he has produced at Rs .9000 per tonne even though the market price is much less. Thus, the value of the derivative is dependent on the value of the underlying. If the underlying asset of the derivative contract is coffee, wheat, pepper, cotton, gold, silver, precious stone or for that matter even weather, then the derivative is known as a commodity derivative. If the underlying is a financial asset like debt instruments, currency, share price index, equity shares, etc, the derivative is known as a financial derivative. Derivative contracts can be standardized and traded on the stock exchange. Such derivatives are called exchange-traded derivatives. Or they can be customized as per the needs of the user by negotiating with the other party involved. Such derivatives are called over-the-counter (OTC) derivatives. Continuing with the example of the farmer above, if he thinks that the total production from his land will be around 150 quintals, he can either go to a food merchant and enter into a derivatives contract to sell 150 quintals of soybean in three months time at Rs 9,000 per ton. Or the farmer can go to a commodities exchange, like the National Commodity and Derivatives Exchange Limited, and buy a standard contract on soybean. The standard contract on soybean has a size of 100 quintals. So the farmer will be left with 50 quintals of soybean uncovered for price fluctuations. However, exchange traded derivatives have some advantages like low transaction costs and no risk of default by the other party, which may exceed the cost associated with leaving a part of the production uncovered.

FORWARD:- A forward contract is a customized contract between two entities, where settlement takes place on a specific date in the future at today’s pre-agreed price.. Forwards are contracts customizable in terms of contract size, expiry date and price, as per the needs of the user.

FUTURES:- As the name suggests, futures are derivative contracts that give the holder the opportunity to buy or sell the underlying at a pre-specified price some time in the future. They come in standardized form with fixed expiry time, contract size and price. A futures contact is an agreement between two parties to buy or sell an asset at a certain time in the future at a certain price. Futures contracts are special types of forward contracts in the sense that the former are standardized exchange-traded contracts.

OPTIONS:- Options are a right available to the buyer of the same, to purchase or sell an asset, without any obligation. It means that the buyer of the option can exercise his option but is not bound to do so. Options are of 2 types: calls and puts.

CALLS:- Call gives the buyer the right, but not the obligation, to buy a given quantity of the underlying asset, at a given price, on or before a given future date. Example: - A, on 1st Aug. buys an option to buy 600 shares of Reliance Ind. Ltd. @ Rs 450 on or before 1st Sep. In this case, A has the right to buy the shares on or before the specified date, but he is not bound to buy the shares.

Complete notes are in the attachment, please click on it…………
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Last edited by Aakashd; May 22nd, 2019 at 09:27 AM.
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Old April 9th, 2013, 06:29 PM
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Join Date: Nov 2011
Default Re: Financial Derivatives Notes MBA MBA Notes Derivatives

Financial Derivatives Notes is useful to study Financial Derivatives and also do a project on Financial Derivatives.

It contains following Pages:-
Futures contract
Option contract
Options nomenclature
Options on equity securities
Index futures and index option contracts
Debt options
Yield-based options
Foreign currency options

For complete information for Financial Derivatives Notes MBA are providing you the attachment PDF file. You can download free from here.
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File Type: pdf Financial Derivatives Notes MBA.pdf (1.09 MB, 2040 views)
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Old September 1st, 2014, 07:54 PM
Default Re: Financial Derivatives Notes MBA MBA Notes Derivatives

different types of financial derivatives
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