Derivatives Market: A Strategic Financial Tool in Locking Future Prices

Abstract

Financial globalization also paved way with numerous innovative financial services, products, instruments, investing wisely, minimizing risk on one hand and maximizing returns on other hand. India being a developed economy in recent years, opened market for financial investments and allowed prices to vary with the prevailing market conditions. The corporate sector has grown manifolds in the 21st century, with the rise in banking, industry, advancement of technology, which made financial market prices fluctuating without any proper estimation for future. This made corporate world to depend on the financial instruments which can predict the future price of an instrument, so as to avoid the future risk. Answer to all the above issues of corporate sector, is given by “Derivatives” which derive some future value of its “underlying asset”. These derivatives provide an effective estimation of future price, which can solve the problem of risk and uncertainty due to fluctuation of interest rates, exchange rates, stock market prices and any other underlying assets.