Introduction to Financial Derivatives - Basic Understanding

-

 In today's post we will introduce you the Financial Derivatives in the Indian Financial Market.

So, What exactly is a Financial Derivative?? 

Derivatives are Financial Instruments that derive their value from other existing Asset Classes.


The term Derivatives indicates the instruments derives its values entirely from the asset it represents.

Given Below are the type of Asset Classes : 
- Equity, 
- Bullion, 
- Currency, 
- Commodity, 
- Realty, 
- Rate of Interest and 
- Livestock.

When you invest in Derivatives, 
you actually place a Bet on
whether the value of the asset represented will increase or decrease 
by a certain percentage and
within a set period of time.

There are 3 types of participants in a Derivatives Market:

1. Speculators - Speculators are the High Risk Takers. they take risk to earn profits by
Buy in low and Sell in High or
First Sell in High and later Buy in Low.

2. Hedgers - Hedgers are cautious players who protect themselves from risk by closely watching price movements and sell as soon as they reached at their optimum price. Thus getting an assured price for the stock.

3. Arbitrageurs - The person who attempts to earn the profits from inefficiencies in price by making transactions that offset each other is an Arbitrageur. He typically makes his profit by Buy in low in one market and Sell in High in another.




  

Comments

Post a Comment

Popular posts from this blog

GST - Important Reconciliations must be done before finalization of the Financial Statement

-
Image
To Ensure that there are no major / material misstatements, It is important to check compliance with GST laws and rules even during the finalization of the Financial Statement. An important list of reconciliations is given below:  Balance of Electronic Credit ledger with Balance of Input Tax credit (ITC) in Books of Accounts  Balance of Electronic Cash ledger with Balance of excess cash paid in Books of Accounts  GST paid in cash in March return, with GST Payables as per Books of Accounts  Refund claimed in GST portal with ITC refund receivable in Books of Accounts  Output Liability in GST returns with Books of Accounts  ITC Reconciliation in FORM GSTR-2A/ 2B with FORM GSTR-3B and Books of Accounts  ITC reversed in FORM GSTR-3B with Books of Accounts  Ineligible ITC in FORM GSTR-3B with Books of Accounts  Reconciliation of Gross Turnover in Books of Accounts with FORM GSTR-1, e-Way Bills and FORM GSTR-3B  Reconciliation of accounts of the suppliers  Adjustments of previous year, do
Read more

Non-Profit Organisation (NPO)

-
Image
Non-Profit Organisatoin’s (NPO) have played a crucial role in development of India. There are various NPOs that work all over India and for a wide range of causes.  The World Bank defines NPO’s as “private organizations that pursue activities to  relieve suffering,  promote the interest of the poor,  protect the environment,  provide basic social services, or  undertake community development.”  NPOs do not work for profit motive and apart from own sources, NPO utilises funds raised through donations. NPOs receiving foreign contributions in India come under the purview of Foreign Contribution Regulation Act, 2010 i.e. FCRA. Corporate Social Responsibility (CSR) is practical way to give back to society and NPOs are the best way to do this. NPOs can be registered in any of the applicable acts as mentioned below, according to the type of organisation chosen to be formed. Major laws and acts applicable to NPO are as follows – Society registered under Societies Registration Act, Central or r
Read more

Panel Finalises GST Rate Structure, Fixes Rates at 5%, 12%, 18% & 28%

-
A 4-tier GST tax structure of 5, 12, 18 and 28 per cent, with lower rates for essential items and the highest for luxury and de-merits goods that would also attract an additional cess, was decided by the all- powerful GST Council today. With a view to keeping inflation under check, essential items including food, which presently constitute roughly half of the consumer inflation basket, will be taxed at zero rate. The lowest rate of 5 per cent would be for common use items while there would be two standard rates of 12 and 18 per cent under the Goods and Services Tax (GST) regime targetted to be rolled out from April 1, 2017. Announcing the decisions arrived at the first day of the two-day GST Council meeting, Finance Minister Arun Jaitley said highest tax slab will be applicable to items which are currently taxed at 30-31 per cent (excise duty plus VAT). Luxury cars, tobacco and aerated drinks would also be levied with an additional cess on top of the highest tax rate. The coll
Read more