A derivative is an instrument that derives its value from an underlying asset. The Foreign Exchange Management (Foreign Exchange Derivatives Contracts) Regulations 2000 defines a foreign exchange derivatives contract as a financial transaction or arrangement in whatever form or name, whose value is derived from price movement in one or more underlying assets and includes: i. A transaction which involves [...]
The following points highlight the four main products of currency derivatives. The products are: 1. Forward Contract 2. Futures Contract 3. Options Contract 4. Swaps. 1. Forward Contract: Forward contracts are used by companies and individuals to hedge currency risk. In December 2003, the RBI permitted resident individuals to enter into forward contracts to hedge their foreign exchange risk. Resident [...]
In this article we will discuss about:- 1. Introduction to Black-Scholes Model 2. Assumptions of Black-Scholes Model 3. Advantages 4. Limitations. Introduction to Black-Scholes Model: It is a tool for pricing equity options. Fischer Black, Myron Scholes and Robert Merton were awarded the Nobel Prize in Economics for developing this model in 1973. Prior to its development there was no [...]