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Derivatives Introduction - CMA/CA Final SFM Video Lectures (New Syllabus)
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- เผยแพร่เมื่อ 18 ส.ค. 2024
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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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I guess, u r the only person who explains in a way even a lame man can understand the concept..... Thank u Sir....
I never truly understood derivatives until today. Your videos are extremely helpful for a non commerce student .
Thank so much Sir for the lucid explaination and taking the time and effort to post these videos for free ...video request : BOP and capital account convertibility, ECB , FCCB , role of the central bank in foreign exchange market
Future contract 38:30
Long and short position ( in stock market): 44: 40
Long and short position in future : 54 : 27
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 TH-cam never showed you in recommendation.
Gonna watch all your videos 👍
You're most welcome
Hello sir I have cleared my cma final 1st group with exemption mainly with the help of your videos for understanding the concepts thank you so much sir we students will be very grateful if u also upload the videos for cma final students thank you sir
Wheater nikil sir lecture is available for CMA final ?
Archu rj how to prepare paper 14 in CMA final can you guide me .
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...
Before watching this and after watching this video, I have cleared doubts on derivatives, always I am trying to understand from the books but I couldn't, when I watched this I am feeling like "oh so this is called derivatives" 🙂
Best of best lecture I have ever listened on derivatives
Thanks for the crystal clear clarity on the subject.
Thanks and most welcome...
Hello sir I’m a CA final student and was very perplexed with the concepts of derivatives and because of your videos , I’m able to easily understand the chapter and able to solve without any difficulty, thanks for the support from your end. Will always be great full for your videos!!!!
Hello Sir, really your videos are so much useful in same way expecting topics about corporate action in detail. Thanks for quality teaching.
Sir, u r fabulous... Ur teaching is like preaching.... We don't feel bore.. Rather it motivates us to learn the topic in depth....
I have never found derivative such an interesting topic like it seems today...after ur explanation sir
You are truly a sfm teacher.
Thanks Rahul.
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Your teaching style is unique by which a weak student will learn concept with comfortably
Thank you soo much sir. It really helped me to study for my exams.
Most Welcome Pooja.
Straight to the point. I like it. Watched many videos by many, but this is the best.
Thank you so much for the great lecture! It really helped me in understanding the concepts.
Sir till today i was so much confused with this chapter.but after watching your videos this chapter has became so interesting for me.The way of your teaching is so much simplified and easy to understand that we just dont need to open the book at all. My all concepts are cleared while watching your videos itself.once again Thank You Sir! You are the best teacher any student would learn from.
Extremely useful not only for the students but also for the trainers in the area of financial markets. Great sir.
Really engrossing lecture.... No beat around the bush... Just to the point... Thank you sir... For making derivative understandable easy.
It's a very useful video...thank you sir... Actually all videos are very helpful for me...thank you once again.
Thank you so much sir for explaining in such a Lucid manner and making us Understand Derivatives with utmost Clarity
Best video ever which clears all concept regarding Derivatives.
THANKU SIR
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The chapter I used to scared of, But not now. Got the basics resolved. Thank you.
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Im preparing for 80+ in SFM.
I am in one of the top B schools of India, but I could understand the concept only through this very well explained video. Wish I could have such faculty in my B schools!
Wow, nice explanation, i tried many notes but still couldn't understand, this lecture was superb. Thank you sir.
👍
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I am a CA finalist from Nepal and all I am extremely thankful for building SFM concepts and clearing doubts with such ease and comfort. Thanks a lot for your help.
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Another great video. I really enjoyed this class. Countless books might not have delivered the sort of clarity this video has given with regards to the concept.
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Thank you sir... For ur selfless efforts..
Topics required:
Option
Put, call,in the money,out of money,at the money
Did you watch my video on "Options Basics"..?
It covers all these concepts.
Today I was just searching a video of derivatives your video is really very helpful and valuable.. 💲
One word for your teaching style Sir-"CLASSY"
Thanks a million
Sir, I am not from an accounting background and understanding this concept of derivatives was a nightmare for me.. This video of yours really did make my understanding clear and the concepts simpler!! Thank you for such a great session!! Loved your way of explaining concepts ..
Thank you so much sir, i have always found derivatives complex but you have really made it so simple that i can explain to another person
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Thanks sir,
information about the derivatives
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Wonderful explanation. Better than any other resources on derivative available
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Glad you liked it!
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Bow Down to the real Guru Of finance.🙏🙏
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Hello sir hats off to your teaching style and presentation slides.thank you so much sir for your lectures of sfm.no one can teach like you.
You are most welcome
Wow sir,I had been searching for derivatives meaning and examples I learned somehow but your the only person who explained very simply that i understood very well thank you so much...
Hii Sir...I am Ca Final student and this video was very useful to me .The main advantage from your class is that you are explaining the concept in English so that many people(even people outside India)can understand.Finally thank you so much for explaining us Derivatives concept in Clear cut and Understandable Manner.
Thank you very much sir!very helpful to us
Excellent delivery and explanations
explanations were really great, informative and very easy to understandable to everyone. Thank you sir for such a wonderful session.
Thank you so much sir..very beautifully explained this topic.
So beautifully explained conceptually and in simple English ✨. Thank you sir
Thank you so much sir for explained these tough concepts of future & options easily
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Find myself after watch the video. Concept clarification and way of pronouncing and teaching chanceless. No one before you. Thank you sir
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Sir, thank you so much for uploading this video.
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You are most welcome
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Great sir... :) Understood Derivaties in a much simpler way.....
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Thank you very much from the bottom of my heart.
I understood Forex and Derivatives only because of ur videos . Forever grateful to u Sir
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Thank you so much.
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You are most welcome
Wow spent 5 hours to understand these concepts throughly by reading texts and from watching videos.. Couldn't grasp it.
This video cleared all my doubts thank you !!! Subscribed and liked.
Thank you so much Nikhil sir for this very informative tutorial ....
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It's really helped me to study my exam.,❤️❤️❤️❤️❤️❤️
Thanku sir for such simple explainations, your videos are really helpful for us...
THANK YOU SIR..FOR CLARIFICATION OF CONCEPTS
Thankyou sir.
Good morning Sir. It is very simple and obvious that you are SFM Guru.
Thank you so much sir. Never understood derivatives till this video.🙏🙂 You explained all the concepts very easily.
Thank you so much sir... This video is very helpful for preparation
Your way of teaching is awesome sir ... In one video only I learnt all the basic concepts of derivatives... Tq so much
sir your way of teaching is very well
Thanks for that video lectures
Thankyou so much sir. Your classes are very helpful.
You are most welcome