Study Notes

  Unit 2:  DERIVATIVE INSTRUMENTS –FORWARD AND FUTURES Syllabus- Forward Contract: Meaning & Definition, Features, Terminologies, Pricing of Forward, Contract Limitations, and Explanation of Forward Contract with a simple example Futures Contract: Meaning & Definition, Terminologies, Participants, Types of Futures Contract, Futures v/s Forwards, Pricing of Futures: Theoretical Pricing of Derivatives - Cost of Carry Model (Theory Only), Explanation of Future Contract with a simple example, Futures Market in India – Recent Developments Introduction Meaning of Forward Contract  A Forward Contract is a contract made today for delivery of an asset at a pre-specified time in the future at a price agreed upon today. In other words, a forward contract is a contract between two parties who agree to buy/sell a specified quantity of a financial instrument/commodity at a certain price at a certain date in future. A forward contract is an agreement between two parties to buy or sell underly

  Unit 1:  RISK MANAGEMENT  I ntroduction :  Risk Risk can be defined as the chance of loss or an unfavourable outcome associated with an action. Uncertainty does not know what will happen in the future, the greater the uncertainty, the greater the risk. Definition of Risk Management :  1) Risk management is an integrated process of delineating (define) specific areas of risk, developing a comprehensive plan, integrating the plan, and conducting the ongoing evaluation’ – Dr. P.K. Gupta.  2) Risk Management is the process of measuring, or assessing risk and then developing strategies to manage the risk’ – Wikipedia.  3) Managing the risk can involve taking out insurance against a loss, hedging a loan against interest rate rises, and protecting an investment against a fall in interest rates’ – Oxford Business Dictiona ry Unit 2- Derivative instruments-Forward and Future Process of Risk Management The Five Essential Steps of a Risk Management Process are: Step 1: Identify The Risk-   The

    Unit 2  FOREIGN EXCHANGE & BALANCE OF PAYMENTS    Introduction to Forex, Forex (FX) refers to the global electronic marketplace for trading international currencies and currency derivatives. It has no central physical location, yet the forex market is the largest, most liquid market in the world by trading volume, with trillions of dollars changing hands every day. Most of the trading is done through banks, brokers, and financial institutions. Forex exists so that large amounts of one currency can be exchanged for the equivalent value in another currency at the current market rate. Foreign exchange market  • The foreign exchange market is a decentralized worldwide market.It does not have a  single market place or an organized exchange, electronic or physical like a stock exchange  • The participants in the foreign exchange market include central banks, commercial banks, brokers etc.  • The central banks monitor market movements and sentiments and intervene according to governme