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SRI RAMAKRISHNA ENGINEERING COLLEGE, COIMBATORE-22 DEPARTMENT: DEPARTMENT OF MANAGEMENT STUDIES SUBJECT CODE & TITLE: 10DCF06 FINANCIAL DERIVATIVES CLASS: Aim: This course aims to provide an understanding of the dynamics of derivative market and will familiarize students to the usage of various instruments of derivatives, pricing and valuation. Name of the Faculty: Dr.S.Krishnaprabha LESSON PLAN Unit/ Topics II MBA SEMESTER: III

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Portions to be covered

Duration

Unit-1

DERIVATIVES AN INTRODUCTION

1.1 Definition of Derivatives - Types of Derivatives 1.1.1 Deliverable Meaning of Derivatives Definition of Derivatives Types of Derivatives 1.1.2 Discussion Introduction of Derivatives in India 1.1.3 Exercise Collection of different Derivative Products
2008., 6-15.

Readings: S. L. Gupta, Financial Derivatives, Theory, Concepts and Problems, PHI, 1.2 Participants in the Derivatives Markets 1.2.1 Deliverable Meaning of Hedgers, Speculators and Arbitrageurs 1.2.2 Discussion Various functions of the Participants 1.2.3 Exercise Analysing the importance of Derivatives Market in India 1.3 Economic Functions of Derivative Market - Hedging, Speculation and
Arbitration

1.3.1 Deliverable 1.3.2 Discussion 1.3.3 Exercise

Economic Functions of Derivative Market Hedging, Speculation and Arbitration mechanisms

Importance of Hedging & need for speculation Risk Reward scenario in current derivative Markets

1.4 Risks in Derivatives Trading

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Unit/ Topics

Particulars

Portions to be covered Risks & objectives in Derivative Trading Types of Risk Risks in Derivative Market in India Myths in Derivatives FIMMDA Derivative Markets in India

Duration 2 (5)

1.4.1 1.4.2 1.4.3 1.5

Deliverable Discussion Exercise Deliverable Discussion

Myths of Derivatives - Derivative Market in India, FIMMDA

Readings: S. L. Gupta, Financial Derivatives, Theory, Concepts and Problems, PHI, 2008, 13-15,17-23 Unit 2 FORWARDS 2.1 Forward Contracts - Types

2.1.1 Deliverable 2.1.2 Discussion

Objectives & types of Forward Contract Importance of FC Methods of Forward Contract and its drawbacks

Readings: S. L. Gupta, Financial Derivatives, Theory, Concepts and Problems, PHI, 2008.,64-67. 2.2 Forward Trading Mechanism - Assumptions and Notations

2.2.2 Discussion 2.2.3 Exercise

Requisites for Effective Forward Trading Mechanisms Assumption of forward trading Analyse the need for forwarding

Readings:S. L. Gupta, Financial Derivatives, Theory, Concepts and Problems, PHI, 2008, 68-71 2.3 Forward Rate Agreements - Pricing of FRA(67)

2.3.1 Deliverable 2.3.2 Discussion 2.3.3 Exercise

2008. 67,68

Definition of Forward Pricing Requirement of forward rates Over the Contract between parties Risks involved in Forward rating

Current scenario of FRA

Readings: S. L. Gupta, Financial Derivatives, Theory, Concepts and Problems, PHI,

2.4 Determination of Forward Price 2.4. Deliverable Factors affecting forward pricing 1 2.4.2 Discussion Spot price and forward Price

2 (8)

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Readings: S. L. Gupta, Financial Derivatives, Theory, Concepts and Problems, PHI, 2008, 69. 2.5 Valuation of Forward Contracts on Income and Nonincome bearing securities Meaning of forward contracts 2.5.1 Long forward contract Deliverable Short forward contract

2.5.2

Discussion

Risk involved in Long & short positions

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Unit - 3

MECHANICS OF FUTURES

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3.1 Futures Terminologies - Forwards Vs Futures QP08/11-12/XX/LEP/05 3.1.1 Deliverable Futures Terminologies difference between
Forwards Vs Futures (51)

3.1.2 Discussion Exercise

Benefits of future contracts Indian Future Market

Readings: S. L. Gupta, Financial Derivatives, Theory, Concepts and

Problems, PHI, 2008.28-31.

3.2 Relationship between Spot and Futures price 3.2.1 Deliverable Meaning of spot price and futures price Reasons -Difference Between spot and future price 3.2.2 Discussion

Lead - lag relationship between the futures and spot prices

3.3 Market Participants - Specification of Futures Contract - Margin Requirements 3.3.1 Deliverable Participants in the future contract market 3 Specifications of future contract Meaning Margin & requirements Types of Margin 3.3.2 Discussion Factors determining the prices of future market 3.3.3 Exercise

Analysis of Future Prices for few currencies

Readings: S. L. Gupta, Financial Derivatives, Theory, Concepts and

Problems, PHI, 2008. 31-49.

3.4 Marking-to-Market - Types of Futures - Stock, Index, Currency, Commodity 3.4.1 Deliverable Marking to market meaning 3 (10) Types of futures First in First out 3.4.2 Discussion Institutions Facilitating Futures Trading Structure of Futures Exchanges Clearinghouses Role in Futures Markets 3.5 Case Study

Casestudy : Whole Foods Market was the biggest retailer of organic and natural foods in the world

Readings: S. L. Gupta, Financial Derivatives, Theory, Concepts and Problems, PHI, 2008. 30 3.6 Hedging Using Futures - Trading Mechanism in Futures 3.6.1 Deliverables
Hedging Using Futures Trading Mechanism Leverage with future pricing Financial future pricing

Hedging Principle Interest Rate Futures as a Hedging Device Readings: Bishnupriya Mishra & Sathya Swaroop Debasish, Financial Derivatives, Excel Books, 2007.85-106 3.7 Clearing and Settlement Mechanism - Cash-and-Carry Model. (Theoretical concepts only) Deliverables Cash and carry model Cash carry Arbitrage

Discussion

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Content Beyond the syllabus Lecture Hours Text Book/ Reference Book
Teaching Methodology planned Activity Planned for Learners

Portions to be Covered

1. 2. 3.

Inflation and gold investment analysis Euro Crisis Inflation and stock market analysis

PPT PPT PPT

Group Discussion

Text Books: 1. John C Hull, Options, Futures and Other Derivatives, Pearson, 2009. 2. S. L. Gupta, Financial Derivatives, Theory, Concepts and Problems, PHI, 2008. Reference Books: 1. Bishnupriya Mishra & Sathya Swaroop Debasish, Financial Derivatives, Excel
Books, 2007.

2. Jayanth Rama Varma, Derivatives and Risk Management, McGraw Hill, 2009. 3. David Dubofsky & Thomas Miller, Derivatives, Valuation & Risk Management,
Oxford, 2009. 4. SSS Kumar, Financial Derivatives, Prentice Hall of India, 2007. 5. Study Material of National Stock Exchange of India Ltd (NSE).
Jourals: 1.