A Derivative is a Risk Hedging Tool from Investor Perspective

Keywords: Hedging, Speculation, Risk Shifting, Investor


Derivatives products provide certain important economic benefits such as risk management or redistribution of risk away from risk-averse investors towards those more willing and able to bear the risk. Derivatives also help price discovery, i.e., the process of determining the price level for any asset based on supply and demand. These functions of derivatives help inefficient capital allocation in the economy; at the same time, their misuse also poses a threat to the stability of the financial sector and the overall economy. In the mid-1990s, India started reviving the exchangetraded commodity derivatives market. It introduced a variety of instruments in the foreign exchange derivatives market, while exchange-traded financial derivatives were introduced in 2001. Given India’s experience in informal derivatives trading, the exchange-traded derivatives were quick to pick up substantial volumes. This paper presents the concept of derivative and types of derivative products and how the investor perceives the derivative instrument as a risk-hedging tool in shivamooga city. The study is selected 70 respondents and used percentage analysis. The result obtained from the study reveals that the investor prefers a derivative is a risk-hedging tool.

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