Financial Derivatives A Study of Indian Capital Market

Abstract

newlineFinancial sector reforms in the decade of 1990s have transformed the Indian capital markets into a dynamic and extensive market among the world s prominent financial markets. Derivatives provide investors and issuers with a wider range of tools for overseeing risks and raising capital. Derivatives have shifted the speculative trading to a more controlled environment with risk containment measures like margining and monitoring of the performance of various participants. newline newlineThe present study analyses the perception of market participants towards derivative trading, its relationship with the spot market and its role in Sub Prime crises. The study was conducted in India in the state of Uttarakhand to get an insight into the minds of investor and study how their age and risk profile influence their decision to invest in derivatives. newline newlineThe present study follows a descriptive research design. A detail review of literature available online and offline from the researches done in the related areas was consulted to formulate the research hypotheses. The sample units for the present study include brokers and sub-brokers of National Stock Exchange of India operating in the state of Uttarakhand. Statistical tools such as Cronbach s alpha, Homogeneity of Variances and Analysis of Variance ANOVA technique was used for hypothesis testing and analyse differences in the perception of investors located in the state of Uttarakhand. newline newlineThe findings of the study suggest that the investors think that high transaction costs, lack of training, malpractices adopted by illegal financial advisors and shorter trade timings are few impediments to derivative trading in India. Efforts should be made to build and gain investors confidence in the market mechanism. The policy implications of the study suggest that the role of derivatives can be better harnessed for economic growth and development of the country by promoting its use for hedging purposes. This can be achieved only if there is a large and active investor base. newline newline newline newline