ABSTRACT:

A derivative is a generic term for specific types of investments from which payoffs over time are
derived from the performance of assets (such as commodities, shares or bonds), interest rates,
exchange rates, or indices (such as a stock market index, etc). This performance can determine both
the amount and the timing of the payoffs. The diverse range of potential underlying assets and
payoff alternatives leads to a huge range of derivatives contracts available to be traded in the
market. Today there many instruments available in the market which always optimize risk and tries
give high returns and derivatives are which are gearing more attentions. The main types of
derivatives are futures, forwards, options and swaps. There is tremendous growth in the use
derivatives have found in the recent years; it is more than the equity segment because it is features,
which help in hedging the risk. The growth in derivative has run in parallel with the increasing direct
reliance of the companies on the capital for the long –term sources funds. Emerging in the 1970s,
derivatives markets grew from strength to strength. The trading volumes nearly doubled in every
three years. They become so ubiquitous that, now, one cannot think of the existence of financial
markets without Derivatives.