Financial Management

Futures Contracts A derivative is a product whose value is derived from the value of one or more basic variables called bases. These underlying assets or reference rates can include Equity, Forex, and Commodity. Futures contracts are a significant type of financial derivative. Definition and Nature A Futures Contract is an agreement between two parties that commits one party to buy an underlying financial instrument (bond, stock, or currency) or commodity (gold, soybean, or natural Read more

A derivative is a product whose value is derived from the value of one or more basic variables called bases. These underlying assets or reference rates can include Equity, Forex, and Commodity. Forward contracts represent the simplest form of financial derivatives. Introduction and Definition A Forward contract is a bilateral contract that obliges one party to buy, and the other party to sell, a specified quantity of a nominated underlying financial instrument at a specific Read more

An Option is a financial contract that provides the buyer with a right, but not the obligation, to either buy (call option) or sell (put option) an underlying asset. This right can be exercised at an agreed-upon price, known as the Exercise Price or Strike Price, within a certain period or on a specific date, regardless of changes in the underlying asset’s market price during that period. An option transaction involves two parties: the buyer Read more

A derivative is a financial contract that derives its value from an underlying asset. It is a product whose value is to be derived from the value of one or more basic variables called bases. These underlying assets can be stock, currencies, commodities, and more. Derivatives are a mechanism to hedge market, interest rate, and exchange rate risks. They are financial instruments whose value depends, or derives from, one or more underlying financial assets. In Read more

Global Depository Receipts (GDRs) are a type of negotiable financial security traded on a local stock exchange that represents a security, usually in the form of equity, issued by a foreign publicly listed company. They are certificates created by an Overseas Depository Bank outside India and issued to non-resident investors against the issue of ordinary shares. A GDR is essentially a negotiable certificate held in a bank of one country representing a specific number of Read more

Securitization is a process of converting illiquid assets into marketable securities. It is a method of transforming assets of a lending institution into negotiable instruments for generating funds. In simpler terms, securitization is the means of turning illiquid assets into liquid assets to free up blocked capital. The process involves packaging receivables on debts against collateral assets like property, land, building, and other real estate, making them exchangeable financial instruments. The Reserve Bank of India Read more

Commercial Paper (CP) Definition and Nature Commercial Paper is widely described as an unsecured short-term debt paper or instrument. It is issued in the form of a promissory note or dematerialized form. In India, due to varying state stamp duty structures and the lower duty for Usance Promissory Notes (UPN) of short-term maturity (up to one year), CP is often retained as a UPN. The stamping of a UPN is governed by the Central Act. Read more

Financial markets are dynamic environments where new instruments are constantly introduced and evolved to meet the diverse needs of investors and businesses. These “new financial instruments” play a significant role in resource mobilization and risk management, reflecting an increasing sophistication in financial transactions driven by factors like globalization and technological advancements. Within the Money Market, several instruments are highlighted as relatively new or gaining prominence, supplementing traditional tools like call money and treasury bills. In Read more

Factoring is fundamentally a financial service involving the conversion of credit bills into cash. It refers to the outright sale of accounts receivable to a factor or a financial agency. A factor is a firm that acquires the receivables of other firms, acting as a financial intermediary. This service is also known as “Invoice Agent” or the purchase and discount of all “receivables”. Factoring can be seen as a method of financing whereby a firm Read more

Mutual Funds are a significant part of the financial services sector, particularly in India, offering a way for individuals to invest in capital markets. A mutual fund is structured as a trust that pools the savings of many investors who share a common financial goal. The money collected is then invested by professional money managers in various securities, such as stocks, bonds, and other instruments, according to the scheme’s stated investment objectives. Any income earned Read more