Home » Derivatives Introduction – CMA/CA Final SFM Video Lectures (New Syllabus) financial derivatives in malayalam

Derivatives Introduction – CMA/CA Final SFM Video Lectures (New Syllabus) financial derivatives in malayalam

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Meaning of Derivative
• A derivative is a contract between two parties.
• Expected to be settled at a future date.
• Its Value is derived from the value of the underlying assets.
• No initial investment or very small amount of initial investment is required.

What is a Derivative Contract?
A derivative contract is a financial instrument whose value is derived from the value of the underlying. In other words, its value depends on the value of the underlying assets.

A derivative emerges out of a contract between two parties. It does not have any value of its own but its value in turn depends on the price movements of other assets underlying the contract, known as underlying assets (such as commodities, shares, bonds, foreign currencies etc.) or indices (such as stock market index, consumer price index etc.).

Derivatives are financial instruments that derive their values from price movement of underlying assets

The following example will help you to understand the meaning of derivative and underlying assets:

You want to acquire 500 equity shares in NJ Ltd. Each equity share is presently quoted at ` 1,000. You enter into a contract under which you can buy 500 equity shares in NJ Ltd. at ` 1,000 each. The contract gives you the right to buy 500 equity shares; it does not represent equity shares. The contract by itself has no market value. Suppose at later stage, these shares are quoted in stock market at ` 1,250. At this point your contract attains value. This is because; you can buy equity shares, now available in the market at ` 1,250, for just ` 1,000. The contract is now worth ` 250 x 500 shares i.e. ` 125,000/-. If the market price of such equity shares falls below ` 1,000 your contract becomes worthless.

Four conclusions can be drawn from this example:
1. The contract is a derivative instrument, it fulfills all the conditions of a derivative.
2. It gives you the right to buy the shares.
3. The underlying asset is the equity shares in NJ Ltd.
4. The value of the contract changes with changes in the price of the equity shares. It derives its value from the value of the equity shares.

While in the example given above, the underlying asset was equity shares, in the derivative market, the underlying asset could be commodities, precious metals, foreign exchange rate, and interest rate relating to financial assets and market indices.

Functions of Derivatives
1. Financial derivatives help in facing financial risk arising due to change in share prices, interest rates and currency rates.
2. The instruments known as financial derivatives provide a commitment to rates and prices for future date and thereby protect a party against future adverse movements.
3. Financial derivatives also provide opportunities to make profit for those who are ready to bear risk.
4. In the process, derivative transfer the risk from those who want to avoid it to those who are ready to take the risk.
5. Derivatives help in price discovery of the underlying asset.

Characteristics of Derivatives
1. The transactions in the derivatives are settled by the offsetting/squaring transaction in the same derivative. The difference in value of the derivative is settled in cash.
2. There is no limit on the number of units transacted in the derivative market because there is no physical asset to be transacted.
3. The derivative markets are usually computerized exchanges as against the trading market for physical assets.
4. Derivatives are only secondary market securities and cannot help in raising funds to a firm. In fact, derivatives arise only when the shares and debentures are already issued by the companies.
5. The derivative market is quite liquid and transaction can be effected easily.
6. The derivatives provide a hedging of price risk of financial transactions over a certain period. It is a contract to be settled in future, by cash payment of difference in price.

Types of Derivatives
Four types of derivatives have been in existence:
1. Forwards
2. Futures
3. Options
4. Swaps

Participants in Derivatives Market

Generally the participants may be classified into:
1. Hedgers,
2. Speculators and
3. Arbitrageurs

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43 comments

AYOOB P T 11/09/2021 - 3:47 Chiều

Great classs sir 🥰🥰🥰🥰🥰

Reply
Mohamed Ziaudeen 11/09/2021 - 3:47 Chiều

Thank you so much sir
Teaching is superb. Awesome.

Reply
Mahendhar Suddala 11/09/2021 - 3:47 Chiều

Thanks alot sir. Your videos are awesome.

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GOVINDAN V R 11/09/2021 - 3:47 Chiều

very nice explanation thank you sir.

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manoj informative tech 11/09/2021 - 3:47 Chiều

😊

Reply
sanjay kumar 11/09/2021 - 3:47 Chiều

I have listened many of your lectures on financial management for my CPD (CAG Audit Departmental internal Examination) exam. Your speech delivery and explanations are exceptional. Thanks. a lot.

Reply
Ayush chhabra 11/09/2021 - 3:47 Chiều

This is top-notch content! Hats off for your teaching methods. One suggestion – Maybe also offer products for MBA students? This is equally good just include some additional depth and this would sell like hot cake. More importantly, we all want to learn from you.

Reply
Mallikarjun Hugar 11/09/2021 - 3:47 Chiều

Hi sir, Excellent excellent excellent.. I don't have words to describe your talent and the way you teaching hats off to you sir… I am a CA FINAL STUDENT.. Love from karnataka

Reply
Hina Hussain 11/09/2021 - 3:47 Chiều

I can't Thank you enough for This. you saved my life. Brilliant work keep it up sir 👍

Reply
Brian Chasimpha 11/09/2021 - 3:47 Chiều

Sir your explanations second to none ..you have really helped me…
I need the full topics in English regarding derivatives…how do I get them??
Please help as I have exams in a month 🙏

Reply
Lalith Achoth 11/09/2021 - 3:47 Chiều

Sir you are a truly exceptional teacher.

Reply
Samidha Wagle 11/09/2021 - 3:47 Chiều

Best way of teaching..seeking for further more lectures to come.. Thank you sir

Reply
palak Agarwal 11/09/2021 - 3:47 Chiều

Thank you so much sir for these videos …now I am able to understand the concept of derivatives 🙏

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veera reddy 11/09/2021 - 3:47 Chiều

Super explanation sir
Tq sir

Reply
siddh shah 11/09/2021 - 3:47 Chiều

Commitment done sir👍

Reply
Ravi Kumar 11/09/2021 - 3:47 Chiều

Good morning Sir. It is very simple and obvious that you are SFM Guru.

Reply
Makarand Thakoor 11/09/2021 - 3:47 Chiều

A very good lecture

Reply
Waheed Khan 11/09/2021 - 3:47 Chiều

Only one lecture achieved everything thanks to you sir

Reply
Abdul Qadir 11/09/2021 - 3:47 Chiều

Respect & Love from 🇵🇰

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Gunnamreddy manjula 11/09/2021 - 3:47 Chiều

How patience you have sir

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Swikrati Singh 11/09/2021 - 3:47 Chiều

After long years of struggling with derivatives.atlast I have understood finally.
I feel like crying 😭 out of Joy.
Thanks you sir.
U r incredible.
Why YouTube never showed you in recommendation.
Gonna watch all your videos 👍

Reply
Recovery Professional 11/09/2021 - 3:47 Chiều

Thank you so much sir… May god bless you❤️ pranam sir

Reply
Lenita Dsouza 11/09/2021 - 3:47 Chiều

Hello Sir, Worth watching all the videos, very easily explained. Thank you very much.

Reply
Sai Latha Perumalla 11/09/2021 - 3:47 Chiều

thank you so much sir🙏

Reply
alappuzha9 11/09/2021 - 3:47 Chiều

Sir, what to say more about you? A guru in finance and i was totally ignorant on this subject but ur wisdom led me to light.

Reply
Gokula Krishna 11/09/2021 - 3:47 Chiều

Thank you so much sir for explaining in such a Lucid manner and making us Understand Derivatives with utmost Clarity <3

Reply
Vikram Parmar 11/09/2021 - 3:47 Chiều

U r one man Army… knows the subject in and out…makes it easier to understand the raw person who had never studied this subject…

Reply
Pragna Annapureddy 11/09/2021 - 3:47 Chiều

This video was very helpful in understanding the concept of derivatives. Thank you so much Sir ! 🙂

Reply
Sinchan K S 11/09/2021 - 3:47 Chiều

explanations were really great, informative and very easy to understandable to everyone. Thank you sir for such a wonderful session.

Reply
Wasesm Uddin 11/09/2021 - 3:47 Chiều

I really admire your Erudition Sir

Reply
AJAY KUMAR PAL 11/09/2021 - 3:47 Chiều

Thank u so much 🙏🙏❤️❤️❤️
I lov your teaching style ❤️❤️

Reply
Nitish Kumar 11/09/2021 - 3:47 Chiều

Sir you have made my concept crystal and clear.

Reply
govardhan p 11/09/2021 - 3:47 Chiều

tq sir

Reply
Sudipta Paul 11/09/2021 - 3:47 Chiều

Thank you sir I really find it very helpful and informative .

Reply
Mohd Lateef 11/09/2021 - 3:47 Chiều

Nice vedio

Reply
Naveen Kumar 11/09/2021 - 3:47 Chiều

Thank you for your lecture, It really help me a lot

Reply
Vanitha Priya 11/09/2021 - 3:47 Chiều

🙏🙏🙏 thankyou so much sir

Reply
ajeet kumar 11/09/2021 - 3:47 Chiều

Thank you very much sir .
Great explanation 👌🙇🙇

Reply
Indranil Banerjee 11/09/2021 - 3:47 Chiều

Very beneficial sir thank you so much

Reply
Kotesh Doddi 11/09/2021 - 3:47 Chiều

Thank you sir the way of your explanation is awesome

Reply
ABIN VINCENT 11/09/2021 - 3:47 Chiều

Excellent class.Nailed it.. Thanks from the bottom of my heart 🔥

Reply
ANURADHA DAS 11/09/2021 - 3:47 Chiều

This is absolutely awesome video sir…. Thank u so much for this explanation…. Thank u a lot.

Reply
Rishi Dilawar 11/09/2021 - 3:47 Chiều

Thank you so much Sir for this Financial Wisdom …….God bless you with good health and wealth….Keep it up Nikhil sir ……lots of love ❣️🙂

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