Executive summary As business become increasingly complex.

Therefore, companies need to have someone systematically look for potential problems and design safeguards to minimize potential damage. In order to survive in this competitive world, management of these risks is very essential. Some commonly used terms for risks are pure, speculative, demand, input, financial, property, personnel, environmental, liability, and insurable risks. The list does give an idea of the wide variety of risks to which a firm can be exposed. Some of these risks can be mitigated, or managed, and that is what risk management is all about. Derivatives are the instruments which are used to hedge some of the risks which a business can face in its day to day operations. In stock market, derivative instruments are used for speculation purpose. It gives investor an opportunity to earn more with a very small amount of money. So now it becomes a new avenue to earn money from day to day fluctuations. IFCI financial service ltd is Indias leading broking firm. It provides a platform to the investors who likely to trade into stock market. So, in order to cater the needs of the investors, a well developed research back up is required. It provides research based fundamental calls to its investors. Looking at increasing interest of investors in derivative markets, this project is attempt to provide future prospectus of stock futures and stock options, valuation of option price, an arbitrage opportunity in option trading and correlation of Nifty with futures. Derivatives market has shown an immense potential which is visible by the growth it has achieved in the recent past, In the present changing financial environment and an increased exposure towards financial risks, It is of immense importance to have a good working knowledge of Derivatives. It is necessary to understand the perception of investors in Jaipur and try to gather information regarding the behavior of investors towards Derivatives. So that, the company can devises certain measures to improve the Derivatives market in Jaipur.

INDIAN ECONOMY OVERVIEW India's economic confidence grew by 8 points to 68 per cent in the month of January 2013 as compared to December 2012, making it the second most economically confident country in the world, according to a survey titled 'Ipsos Economic Pulse of the World'. India's services sector has emerged as a prominent sector in terms of its contribution to national and state incomes, a comparison of the services performance done across the top 15 countries over the 11 year period from 2001 to 2011. India stood first in terms of increase in share of services in the gross domestic product (GDP) with 8.1 per cent, among top 15 countries during 20012011. Moreover, India was among the top 20 real estate investment markets globally with investment volume of Rs 190 billion (US$ 3.46 billion) recorded in 2012, according to Cushman & Wakefield's report International Investment Atlas. India is also expected to be the second largest manufacturing country globally in the next five years, followed by Brazil as the third ranked country, according to Deloitte. The Economic Scenario India is expected to record 6.1 per cent gross domestic product (GDP) growth in the current fiscal. The growth is expected to increase further to 6.7 per cent in 2014-15, according to the World Bank's latest India Development Update, a biannual report on the Indian economy. While, the Prime Minister's Economic Advisory Panel expects the economic growth rate to increase to 6.4 per cent in 2013-14 from 5 per cent during 2012-13, on back of improvement in performance of agriculture and manufacturing sectors. Indian manufacturing and services sectors expanded more than China in February 2013, according to a survey by HSBC. The HSBC composite index for India for manufacturing and services stood at 54.8 in February 2013, whereas it was 51.4 for China.

Some of the other important economic developments in the country are as follows:

Indian companies have invested US$ 1.65 billion abroad in February 2013, according to data released by Reserve Bank of India (RBI) Non-resident Indians (NRIs) placed deposits aggregating to US$ 14.18 billion in the financial year ended March 2013, registering an increase of 19 per cent over the previous year. Non-resident (external) rupee account or NRE deposits with the banking system jumped 85 per cent (rising by US$ 15.81 billion in FY13 compared to US$ 8.53 billion in FY12), according to Reserve Bank of India data The cumulative amount of foreign direct investment (FDI) equity inflows into India were worth US$ 191,757 million between April 2000 to February 2013, while FDI equity inflow during April 2012 to February 2013 was recorded as US$ 20,899 million, according to the latest data published by Department of Industrial Policy and Promotion (DIPP) Foreign institutional investors (FIIs) made a net investment (including equity and debt) worth Rs 168,367 crore (US$ 30.72 billion) in 2012-13, according to data published by Securities and Exchange Board of India (SEBI). Moreover, US$ 310.47 million in the equity and US$ 41.32 million in the debt market were invested by FIIs, as on May 16, 2013, as per the SEBI data Foreign exchange earnings (FEE) from tourism in India registered a growth of 19 per cent to touch Rs 10,186 crore (US$ 1.86 billion) in February 2013 as compared to Rs 8,502 crore (US$ 1.55 billion) during the same period last year Resident Indians remitted almost US$ 930 million abroad in the first 10 months of 2012-13, according to RBI data

Introduction to the Company :IFCI Financial Services Ltd (IFIN) was promoted in 1995, by IFCI Ltd., to provide a wide range of financial products and services to investors, institutional and retail. IFIN is primarily involved in Stock Broking, Investment Banking, Mutual Fund Distribution & Advisory Services, Depository Participant Services, Insurance Products Distribution and the like. IFIN Ltd. was 100 per cent owned by IFCI Ltd., till March 2008. Till after Chennai based brokerage house C.R. Financials and Securities (P) Ltd., merged itself with IFIN Ltd., and its promoters obtained a minor stake in the company. IFIN was totally concentrating on Institutional brokerage from 1995 to 2008. The factors that prompted retail thrust were: It was high time IFCI brand was exploited; and 2008 was a year when markets were in dump and for a long term player it was the right time to assemble a core team at reasonable costs. It was also a good time to selectively spread to Ancash on up returns. IFIN is positioned as a global financial supermarket, built on the foundations of incisive research and trust. Intense interaction with investors helps us understand their specific needs and suggest holistic and appropriate financial solutions. Our teams of professionals continuously scan the financial arena and stay ever prepared to educate investors and partner them in creating enduring wealth.

Industrial Finance Corporation of India(IFCI) was the first development bank established in India in the year 1948.The basic objective of establishment was to make long and medium term credits more ready available to industrial concerns in India. It was established as a statutory corporation under IFCI Act, 1948 and its share capital was subscribed by the, commercial banks, cooperative banks, insurance companies etc. After forty -seven years of experience as the pioneer development bank in the now is known as the IFCI Ltd. IFCIS MAIN ACTIVITIES IFCI is today not only a term lending institution, but an active financial intermediary and a provider of a wide range of services to industry. Project finance is the main activity of IFCI like other development banks. Under project finance is the main activity of IFCI like other development bank. Under project finance, assistance is providing in the following ways; 1. Long term loans- both in rupees and foreign currencies, 2. Underwriting of equity, preference shares and debenture issues, 3. Subscribing to equity, preference shares and debenture issues, 4. Guaranteeing the deferred payments in respect of machinery imported from abroad/purchased India, and 5. Guaranteeing of loans raised in foreign currency from foreign financial institutions. The financial assistance rendered by IFCI is meant for setting up of new industrial projects and also for the expansion, diversification, renovation or modernization of existing ones.

IFCI Ltd. also provides financial assistance to industrial concerns not tied to any project. The following schemes of assistance have been introduced by IFCI under this category: i. ii. iii. Equipment Leasing Suppliers Credit Buyers Credit

Indirect Finance is provided as assistance to leasing companies.

1. ABOUT COMPANY:-I-FIN is uniquely positioned, by virtue of being in the fold of IFCI which is a pioneering All India Financial Institution, to offer a wide array of financial products and services to the investing community in India and NRIs. These include: Stock Broking Commodities Broking Currency Trading Portfolio Management Survives Depository Participant Services Merchant Banking Insurance Corporate Agency Mutual Fund Products Distribution IPO Distribution Corporate Advisory Services I-FINS MEMBERSHIPS & LICENCES The National Stock Exchange of India Limited (NSE) : I-Fin is a premier broking house and is currently a member of NSE in all the segments Cash Market (CM), Futures & Options (F&O), Whole sale Debt Market (WDM) and Currency Derivatives. The company caters to many prestigious institutional clients in the insurance, mutual funds and banking segments.

The Bombay Stock Exchange of India Limited (BSE) : I-Fin is a member of one of the oldest stock exchanges in India, namely the BSE, in the Cash Market (CM) segment. Multi Commodity Stock Exchange of India Limited (MCX SX) : I-Fin has obtained a license from MCX-SX, and is a member of the Currency Segment. MCX-SX provides a host of benefits to a wide range of financial market participants, including exporters, importers, corporates and banks to hedge currency exposures. Depository Participant (DP) : As a Depository Participant with the National Security Depository Limited (NSDL) and Central Depository Participant Limited (CDSL), I-Fin serves its clients in a wholesome fashion. Merchant Banking : As a SEBI approved Category I Merchant Banker, I-Fin is involved in the capital raising exercises of Indian Corporates. Insurance Corporate Agent : I-Fin is an IRDA approved Corporate Agent (CA) for both Life and Non-Life Insurance sectors. It is empanelled with LIC for Life Insurance and Bajaj Allianz for the Non-Life Insurance Sector. Mutual Fund Distribution: Registered with the Association of Mutual Funds in India (AMFI) as a distributor of Mutual Fund products, I-Fin has been highly active and very successful in the distribution of various mutual fund products. Portfolio Management Services: As a SEBI registered Portfolio Manager, we offer Discretionary Portfolio Management Services backed by Equity Research Fundamental and Technical. OTHER MEMBERSHIPS

Through IFCI Commodity Ltd. a subsidiary of IFCI Financial Services Ltd.

Multi Commodity Exchange of India Ltd (MCX) National Commodity & Derivatives Exchange Ltd.(NCDEX) National Spot Exchange Limited (NSEL)

INSTITUTIONS PROMOTED BY IFCI The IFCI has promoted the following specialized institution to cater to the needs of industry: TOURISM FINANCE COOPERATION OF INDIA (TFCI) The cooperation provides finance to tourism, hotel and other tourism related projects. MANAGEMENT DEVELOPMENT INSTITUTION This institution provides training in modern management techniques to entrepreneurs and technologists starting industries and also to executives. The institute also undertakes research in industrial and business management, development banking and related matters. TECHNICAL CONSULTANCY ORGANISATIONS These organizations has been established in various states to provide total package of consultancy from the concept stage to the commissioning of industrial projects with special emphasis on tiny and small scale entrepreneurs. INVESTMENT INFORMATION and CREDIT RATING AGENCY of INDIA Ltd. (ICRA) It is a credit rating agency to guide investors/creditors in determining risks associated with debt instruments.

 INSTITUTE OF LABOUR DEVELOPMENT (ILD) The institute undertakes training and retraining facilities to workers so as to create awareness amongst workers about their rights and obligations towards industry. TOURISM ADVISORY and FINANCIAL SERVICES COOPERATION of INDIA Ltd. It undertakes micro level project consultancy, preparation of project profits and building up of data bank. ABOUT TOPIC DERIVATIVES DEFINED:-Derivative is a product whose value is derived from the value of one or more basic variables, called bases (underlying asset, index, or reference rate), in a contractual manner. The underlying asset can be equity, forex, commodity or Any other asset. For example, wheat farmers may wish to sell their harvest at a future date to eliminate the risk of a change in prices by that date. Such a transaction is an example of a derivative. The price of this derivative is driven by the spot price of wheat which is the "underlying"

In the Indian context the Securities Contracts (Regulation) Act, 1956 (SC(R)A) defines "derivative" to include-

1. A security derived from a debt instrument, share, loan whether secured or unsecured, risk instrument or contract for differences or any other form of security.

2. A contract which derives its value from the prices, or index of prices, of underlying securities. 3. 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.

Derivative products initially emerged as hedging devices against fluctuations in commodity prices, and commodity-linked derivatives remained the sole form of such products for almost three hundred years. Financial derivatives came into spotlight in the post-1970 period due to growing instability in the financial markets. However, since their emergence, these products have become very popular and by 1990s, they accounted for about two-thirds of total transactions in derivative products. In recent years, the market for financial derivatives has grown tremendously in terms of variety of instruments available, their complexity and also turnover. In the class of equity derivatives the world over, futures and options on stock indices have gained more popularity than on individual stocks, especially among institutional investors, who are major users of index-linked derivatives. Even small investors find these useful due to high correlation of the popular indexes with various portfolios and ease of use.

DERIVATIVE PRODUCTS :Derivative contracts have several variants. The most common variants are forwards, futures, options and swaps. We take a brief look at various derivatives contracts that have come to be used.

DERIVATIVE PRODUCTS :-

Derivative contracts have several variants. The most common variants are Forwards, futures, options and swaps. We take a brief look at various derivatives contracts that have come to be used.

Forwards: 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.

Futures: A futures contract 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 instruments whereby the right is given by the option seller to the option buyer to buy or sell a specific asset at a specific price on or before a specific date. Option Seller/ Option Writer- In any contract there are two parties. In case of an option there is a buyer to the contract and also a seller. The seller of the contract is called the options writer. He receives premium through the clearing house against which he is obliged to buy or sell the underlying if the buyer of the contract so desires. o Option Buyer - One who buys the option. He has the right to exercise the option but not obligation & he has to pay a premium for having such right to be exercised.

o Call Option - A call option gives the buyer a right to buy the underlying that is the index or stock at the specified price on or before the expiry date o Put Option - A put option on the other hand gives the right to sell at the specified price on or before expiry date.

Swaps: Swaps are private agreements between two parties to exchange cash flows in the future according to a prearranged formula. They can be regarded as portfolios of forward contracts.

The two commonly used swaps are: Interest rate swaps: These entail swapping only the interest related cash Flows between the parties in the same currency. :-Currency swaps: These entail swapping both principal and interest between the parties, with the cash flows in one direction being in a different currency than those in the opposite direction. Swaptions: Swaptions are options to buy or sell a swap that will become Operative at the expiry of the options. Thus a swaption is an option on a forward Swap. Rather than have calls and puts, the swaptions market has receive swaptions

and payer swaptions. A receiver swaption is an option to receive fixed and pay floating. A payer swaption is an option to pay fixed and receive floating.

PARTICIPANTS IN THE DERIVATIVES MARKETS:-

The following three broad categories of participants - hedgers, speculators, and arbitrageurs trade in the derivatives market. Hedgers face risk associated with the price of an asset. They use futures or options markets to reduce or eliminate this risk. 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. Arbitrageurs are in business to take advantage 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 positions in the two markets to lock in a profit.

RESEARCH METHODOLOGY:-The project study has been conducted by using both primary data as well as secondary data. The major part was by collecting primary data through directly calling up people from the database provided by the company. A pre determined set of question were asked to know their preferences.

2.1 Title

Study of Trading in Derivative market with IFIN. Most of the organization and individuals face financial risk. Changes in the stock market prices, interest rates and exchange rates can have great significance. Adverse changes may even threaten the survival of otherwise successful businesses. It is therefore not surprising that financial instruments for the management of such risk have developed. These instruments are known as financial derivatives. By providing commitments to prices or rates for the future dates or by giving protection against adverse movements, financial derivatives can be used to reduce the extent of financial risk. Conversely they also provide profit opportunities for those prepared to accept risk. Indeed, at least to extent, they involve the transfer of risk from those who wish to who willing to except it. The emergence of the market for derivative products, most notably forwards, futures and options, can be traced back to the willingness of risk-adverse economic agents to guard themselves against uncertainties arising out of fluctuation in asset prices. By their very nature, the financial markets are marked by a very high degree of volatility. Through the use of derivative products, it is possible to partially or fully transfer price risks by locking in asset prices. As instruments of risk management, these generally do not influence the fluctuation in the underlying assets prices.Howevevr, by locking in assets prices; derivative products minimize the impact of fluctuations in asset prices on the profitability and cash flow situation of risk-adverse investors. Derivatives have widely been used as they facilitate hedging, that enable fund managers of an underlying assets portfolio to transfer some parts of the risk of

price changes to others who are willing to bear such risk. option are the specific derivative instruments that give their owner.. the right to buy(call option holder)or to sell(put option holder) a specific number of shares (assets)at a specified prices(exercise prices)of a given underlying asset at or before a specified date(expiration date). RESEARCH DESIGN: Defining the population: The population taken for the research consists of investors or prospective clients of only Jaipur and nearby (adjacent districts) (both retail & institutional) Defining the sample: A random sample has been taken for extensive market survey. A structured set of question has been prepared & asked to people by directly calling them & their feedback was analyzed for precise finding. Size & type of samples: A random sample of size 100 people was taken for surveying. Method to be used: A frequency count has been done for different parameters/questions & the most important factors have suggested to the company for betterment of sales operations.

DATA COLLECTION:
PRIMARY DATA:Primary data collected from IFIN Ltd. personnel in the fields of financial securities & index analysis. Interviews were conducted with pre-written questions pertinent to research work.. SECONDARY DATA:-

This study is based on

secondary data, which are collected from the

websites of the Bombay stock Exchange, National Stock Exchange IFIN Ltd., money control and marketoracle.co.uk e OBJECTIVE The basic objective of my study on DERIVATIVE is mainly as under-

o To analyze and evaluate the complex derivative instruments. o To study and incorporate the hedging tools. o To gain knowledge about derivative market. Various aspects of hedging like forward, futures, option, swap etc.
o

To know traders prevent themselves from fluctuation in exchange rates. To analyses how derivative instruments work.

o To learn how to manage the risk. o To study the clearing and settlement procedure of Derivatives o To know the awareness and perception of Derivative in Jaipur.