A Seminar on 'Financial Derivatives – A Risk Management Tool'
Date: 25th July 09
Speaker – Mr.Snehasish Bhattacharjee, CFA
Ishan Institute of Management
Venue: IMA Convention Centre, Indraprastha Marg
An evening Seminar is being organized on the topic “Financial Derivatives – A Risk Management Tool”. The speaker is Mr. Snehasish Bhattacharjee, CFA from, Ishan Institute of Management.
With the effect of globalization over the financial sector, it's time to recast the architecture of the financial market. The liberalized policy being followed by the Government of India and the gradual withdrawal of the procurement and distribution channel necessitated setting in place a market mechanism to perform the economic functions of price discovery and risk management. Till the mid – 1980's, the Indian financial system did not see much innovation. In the last 18 years, financial innovation in India has picked up and it is expected to grow in the years to come, as a more liberalized environment affords greater scope for financial innovation at the same time financial markets are, by nature, extremely volatile and hence the risk factor is an important concern for financial agents. To reduce this risk, the concept of derivatives comes into the picture. Derivatives are products whose values are derived from one or more basic variables.
Derivatives are financial contracts whose values are derived from the value of an underlying primary financial instrument, commodity or index, such as: interest rates, exchange rates, commodities, and equities. Derivatives include a wide assortment of financial contracts, including forwards, futures, swaps, and options. The value of financial derivatives derives from the price of an underlying item, such as asset or index. Unlike debt securities, no principal is advanced to be repaid and no investment income accrues." While some derivatives instruments may have very complex structures, all of them can be divided into basic building blocks of options, forward contracts or some combination thereof. Derivatives allow financial institutions and other participants to identify, isolate and manage separately the market risks in financial instruments and commodities for the purpose of hedging, speculating, arbitraging price differences and adjusting portfolio risks.
The emergence of the market for derivatives products, most notable forwards, futures, options and swaps can be traced back to the willingness of risk-averse economic agents to guard themselves against uncertainties arising out of fluctuations in asset prices. By their very nature, the financial markets can be subject to 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, derivatives products generally do not influence the fluctuations in the underlying asset prices. However, by locking-in asset prices, derivatives products minimize the impact of fluctuations in asset prices on the profitability and cash flow situation of risk-averse investors. Introduction of derivatives was made in a phase manner allowing investors and traders sufficient time to get used to the new financial instruments.
Now a days it has being used by most of the retail investors, institutional investors, Portfolio Managers as well as Asset management companies and other market Participants as a risk management tool .It has given a new shape in the financial markets in the world as well as in the India also and the volume of transactions are rising over time and I expect that it will be a best risk management tool to protect the Portfolio Loss for all the market Participants in the coming days also.
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