TYPES OF FINANCIAL FUTURES CONTRACTS STOCK INDEX FUTURES It is based on the stock market indices. It is used of the hedging and speculation Here the underlying asset is the stock index. For example – the S&P CNX Nifty popularly called the ‘nifty futures’. Stock index futures are more useful when speculating on the general direction of the market rather than the direction of a particular stock. I t can also be used to hedge and protect a portfolio of shares.   So here, the price movement of an index is tracked and speculated. One more point to note here is that, although stock index is traded as an asset, it  cannot be delivered to a buyer. Hence, it is always cash settled. Both individual stock futures and index futures are traded in the NSE. It is commonly traded by mutual funds, insurance companies, speculators, arbitrageurs and hedgers. Dow Jones Industrial Average, S&P’s 500, New York stock Exchange Index etc. BOND INDEX FUTURES These futures contracts are also based on particular bond indices, i.e., indices of bond prices. Prices of debt instruments are inversely related to interest rates, so the bond index is also related inversely to them. Bond index is the Municipal Bond Index futures based on US Municipal Bonds which is traded on Chicago Board of Trade. COST OF LIVING INDEX FUTURES It is also known as inflation futures. These are based on a specified cost of living index, for example, consumer price index, wholesale price index, etc. This futures can be used to hedge against unanticipated inflation which cannot be avoided. Such futures can be useful to certain investors like provident funds, mutual funds, large companies and governments. P.Krishnaveni/MBA/SNSCT

TYPES OF FINANCIAL FUTURES CONTRACTS INTEREST RATE FUTURES Futures trading on interest bearing securities the underlying asset would be a debt obligation – debts that move in value according to changes in interest rates (generally government bonds).  Companies, banks,   foreign institutional investors, non-resident Indian and retail investors can trade in interest rate futures.  Buying an interest rate futures contract will allow the buyer to lock in a future investment rate. Started in August 31, 2009. Important interest securities are treasury bills, notes, bonds, debentures, euro-dollar deposits and municipal bonds. Almost entire range of maturities bearing securities are traded. FOREIGN CURRENCIES FUTURES Trade in foreign currencies Also called exchange rate futures. It started in the year 1970 Important currencies traded are USD, GBP, YEN, CHF, EURO, CAD Normally used for hedging purposes by the exporter, importer, bankers, financial intuitions and large companies. The MCX-SX exchange trades the following currency futures: Euro-Indian Rupee (EURINR), Us dollar-Indian rupee (USDINR), Pound Sterling-Indian Rupee (GBPINR) and Japanese Yen-Indian Rupee (JPYINR). P.Krishnaveni/MBA/SNSCT

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COMMODITY FUTURES It’s the same as individual stock futures.  The underlying asset however would be a commodity like gold or silver. In India, Commodity futures are mainly traded in two exchanges – 1. MCX (Multi commodity exchange) and NCDEX (National commodities and derivatives exchange). Unlike stock market futures where a lot of parameters are measured, the commodity market is predominantly driven by demand and supply. The term ‘commodity’ is a very broad term and it includes – Bullion – gold and silver Metals – Aluminum , copper, lead, iron, steel, nickel, tin, zinc Energy-crude oil, gasoline, heating oil, electricity, natural gas Weather- carbon Oil and oil seeds – crude palm oil, kapsica khali,refined Soya oil, Soya bean Cereals- barley, wheat, maize Fiber- cotton, kappa Species-cardamom, coriander, turmeric etc Pluses – chana Others- like potatoes, sugar, almonds, gaur P.Krishnaveni/MBA/SNSCT

FROM WEATHER TO TERROR..!! Weather influences everyone’s lives. Right from daily lives to agriculture to corporate earnings – everything gets affected if the weather is not favorable.  For example – let’s assume that this year cold winter is expected in most parts of the United States. What happens is that the price of heating oil goes up.  Heating oil futures are traded in commodity markets depending on weather forecasts. The fear of terrorist strikes had even made Pentagon think of creating a futures market to help predict terrorist strikes. Their theory was that ‘possibility of terror strikes’ in a particular area – for example possibility of a terror strike in New York would be traded as if  it was a commodity.  Higher the price, higher the possibilities of a terror strike. This way they thought, would help them in finding potential threats. Or take another example – the ‘assassination of Israel prime minister futures’ which would be available for trade as a commodity. Higher the price, the more likely the event. P.Krishnaveni/MBA/SNSCT

WORD SEARCH…. CONTRACT MCX COMMODITY NSE INR BOND CURRENCY P.Krishnaveni/MBA/SNSCT

P.Krishnaveni/MBA/SNSCT U L M S D F G H N O B J Y V C T X Q E I R Z P W P.Krishnaveni/MBA/SNSCT

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