Synopsis

For

Final project

Topic: Derivatives (finance)

Submitted to: submitted by:

Mrs. Jasdeep kaur dhami Gagan deep Bansal

MBA-4th/B/622221524

Lovely institute of management

 Introduction

Derivatives are financial instruments whose value is derived from the value of
something else. They generally take the form of contracts under which the parties
agree to payments between them based upon the value of an underlying asset or
other data at a particular point in time.

As a tool of risk management we can define it as, "a financial contract whose value is
derived from the value of an underlying asset/derivative security ". All derivatives
are based on some cash product.
The underlying assets can be:

a. Any type of agriculture product of grain (not prevailing in India)

b. Price of precious and metals gold
c. Foreign exchange rates
d. Short term as well as long-term bond of securities of different type issued by
govt. and companies etc.
e. O.T.C. money instruments for example loan & deposits.

Example: Wheat farmers may wish to sell their harvest at a future date to eliminate the
risk of change in price by that date. The price of these derivatives is driven from spot
price of wheat.

In Indian context, the Securities Contract (regulation) act, 1956[SC(R) A] defines

“derivatives” to include-

a) A security derived from a debt instrument, share, and loan whether secured or
unsecured, risk instrument or contract for difference or any other from of security.
b) A contract, which drives its value from prices or index of prices of underlying
security.
The main use of derivatives is to reduce risk for one party while offering the
potential for a high return (at increased risk) to another. The diverse range of
potential underlying assets and payoff alternatives leads to a huge range of
derivatives contracts available to be traded in the market. Derivatives can be based
on different types of assets such as commodities, equities (stocks), bonds, interest
rates, exchange rates, or indexes (such as a stock market index, consumer price
index (CPI) or even an index of weather conditions, or other derivatives). Their
performance can determine both the amount and the timing of the payoffs.
 OBJECTIVEs OF THE STUDY

Whenever a study is conducted, it is done on the basis of certain objective(s) in mind. A

successful completion of a project is based on the objective(s) of the study that could be
stated as under:

 To understand the basic concept of Derivative “F&O”& how they work in Indian
capital market.
 To know the nuances of derivatives.
 To know that which segment is exposed to more risk.
 To know in which derivative segment investors trade more.
 RESEARCH METHODOLOGY

Research Methodology describes the research procedure. This includes the overall
research design, the sampling procedure, the data-collection methods.
1. Research Design
A research using survey method with the help of structure, questionnaire was
used as it best conforms to the objectives of the study.
2. Data Collection
Through both the primary and secondary methods.
Primary data collection
1) Survey through a questionnaire.
Secondary sources
1) Financial newspapers
2) magazines
3) Internet

3. Sampling plan
a) Universe
Bathinda.
b) Sample size
The sample size is 50.
c) Sampling technique
The simple random sample method is used.
 LIMITATIONS OF STUDY

No study is complete in itself, however good it may and every study has some
limitations.
Following are the limitations of my study:

 Time constraint.

 Insufficient information.

 Sample size is not enough to have a clear opinion.