A SHORT PRESENTATION ON:

FUTURES & DERIVATIVES

TEAM MEMBERS:
AAYUSHA BHATTARAI
ROHIT BIKRAM KARKI ( IN PLACE OF DILIP BABU GIRI)
SHIVARAJ DHAKAL
DERIVATIVES
- a financial instrument ( swap, put, call, or similar option)
- Derivative is a producer whose value is derived from the underlying asset.
- Underlying asset can be equity, forex, commodity, or any other asset.
- For the purchase or sale of, or whose value is based on, one or more interest or other rates,
currencies, commodities, securities, instruments of indebtedness, indices, quantitative measures,
or other financial or economic interests or property of any kind
FUTURES CONTRACT is a legal agreement to buy or sell a particular commodity asset, or
security at a predetermined price at a specified time in future.

FORWARD CONTRACT is a customized contract between two parties to buy or sell an

asset at a specified price on a future date.
OPTIONS
-gives the buyer the right not obligations to buy or sell a specified underlying commodity at a
set price on or before a specified date
- CALL OPTION, often simply labelled as ‘’call’’, is a contract between the buyer and the
seller of the call option, to exchange a security at set price.

- PUT OPTION, often simply labelled as ‘’put’’, is a financial market derivative instrument
that gives the holder right to sell an asset, at a specified price, by a specified date to the wrier of
the put.
COMMODITIES are the raw materials or primary products traded on special
markets. E.g. metals, coffee, cereals, etc.

HEDGING is looking to eliminate or reduce exposure to a particular sort of risks. It

involves reducing risk in order to focus on another subject, while speculating
involves taking on risk in order to profit from insight.

SPECULATION means investment in stocks, property, etc. in the hope of gain but
with the risk of loss. It is an attempt to benefit from a change in price. Buy low, sell
high.

SWAP is a derivative contract through which two parties exchange the cash flows or
liabilities from two different financial instruments.
 EXERCISES
1.

A. Match the following:

1. Futures------Roll no. 5
2. Options----- Roll no. 13
3. Commodities---- Roll no. 18
4. Derivatives-----Roll no. 23
5. Hedging---- Roll no. 32
6. Speculation----- Everyone
1(A) ANSWERS:

1-----B
2-----A
3-----F
4-----C
5-----E
6-----D
A 6 MINUTES TASK FOR EVERYONE TO COMPULSARILY READ THE TEXT.

C. Complete the following sentences. (ANSWERS)

1. forward contract expires depending on the transaction whereas, the expiry date of future
contracts is standardized.
2. it guarantees the next season’s price.
3. currency appreciation & depreciation, interest rate movements are correctly anticipated.
4. buying at current price and hoping to sell that option at profit.
5. buying put the option at current price( or higher), still sell at that price.
6. the exchange rate fluctuates.
D. ANTONYMS FROM THE TEXT

1. appreciate----Roll no. 28
2. call----Roll no. 20
3. discount----Roll no. 19
4. drought----Roll no. 14
5. floating----Roll no. 10
6. hedging---- Roll no. 9
7. spot market----Roll no. 4
8. strike price----Roll no. 1
ANSWERS:

1. depreciate
2. put
3. premium
4. flood
5. fixed
6. speculation
7. future market
8. market price
2(A). LISTENING

Listen to the first part of the talk by Lillian chew, and then decide whether the following statements
are TRUE or FALSE, according to what she says.

1.The fault lies with the blanks who sell derivatives rather than the buyers.
-False.
2. Companies have lost money with derivatives because they look on risks they didn’t
understand.
- True.
3. Companies have used derivatives for purpose other than those they were design for.
- True.
4. Companies ought to use the same derivatives for both hedging and speculating.
-False.
2 b. Read the following extract form the talk while listening to the second part, and match up
the expression in italics with the definitions or synonyms below.

-Take on risk, to increase return, than it requires a more---Speculate.

-Bands-on management approach----Active interventionary.
-Stop-loss limit---- restriction on the amount you can loss if the underlying price changes.
-Scenario analysis to see how that transaction behaves under various condition----A study of all
potential consequences of a derivative contract.
-Sensitivity analysis----A study of a particular market change which could affect the outcome of
a derivative contract.
-Withstood in the firm----Supported.
-Open-ended exposure----Unlimited risk.
-Voluntary oversight forms the SEC-registered companies as well as ISDAs code of conduct----Self-
regulation by the financial industry.
-Unsolicited to customers----Even if nobody ask for it.
2©
Listen to the third part of the talk and answer these questions.
A. Lillian chew says that the image of the derivative industry has been tarnished or damaged,
but this is a good thing. Why?

B. Which of the following does Lillian chew says?

1. First line financial managers and derivatives traders must explain derivative use to senior
management.
2. Senior management must explain derivative use to front line financial managers.
3. Senior management alone must determine derivative policy.
4. Senior management and front line managers together must determine derivative policy.