NCERT Textbook: Derivatives | Financial Literacy for Class 10 PDF Download

 Page 1


Unit Code: 5 Unit  Title: Derivatives
Session-1 : Futures and Options Market
Location:
Class Room,
Stock
Exchange,
FMM Lab,
Learning 
Outcome
Knowledge 
Evaluation
Performance 
Evaluation
Teaching and 
Training Method
Session-2 : Commodity
·
·
Find the 
Derivatives 
Instruments
Difference 
between future 
and options.
·
·
Behavior of 
Derivative 
Trading
Risk to Trade 
in Derivatives
Interactive lecture:
Risk and Return of 
Derivative Trading
Activity:
Mock Trading 
Techniques of 
Derivatives
·
·
How you 
access 
Derivative 
Terminal
Is option more 
suited product 
against future
·
·
Identify the 
features of 
Commodity 
Derivatives
Distinguish 
between 
Commodity & 
Financial 
Derivatives 
·
·
Commodity 
Derivative 
Exchange in 
India
How 
Commodity 
Trade
Interactive lecture:
Risk and Returns of 
Commodity 
Trading 
Activity:
Trading Techniques 
Basics of 
Commodity Market
·
·
Three 
participants 
Hedgers
Speculators
Arbitrageurs
Performance 
of Commodity 
& Financial 
Derivatives
What are Types of Derivatives?
What is ‘Commodity Exchange’?
What is meant by ‘Commodity’?
Forwards: A forward contract is a customized contract between two entities, where settlement 
takes place on a specific date in the future at today’s pre-agreed price.
Futures: A futures contract is an agreement between two parties to buy or sell an asset at a 
certain time in the future at a certain price. Futures contracts are special types of forward 
contracts in the sense that the former are standardized exchange-traded contracts, such as 
futures of the Nifty index.
Options: An Option is a contract which gives the right, but not an obligation, to buy or sell the 
underlying at a stated date and at a stated price. While a buyer of an option pays the premium 
and buys the right to exercise his option, the writer of an option is the one who receives the 
option premium and therefore obliged to sell/buy the asset if the buyer exercises it on him. 
Options are of two types - Calls and Puts options:
‘Calls’ give the buyer the right but not the obligation to buy a given quantity of the underlying 
asset, at a given price on or before a given future date.
‘Puts’ give the buyer the right, but not the obligation to sell a given quantity of underlying asset 
at a given price on or before a given future date.
Presently, at NSE futures and options are traded on the Nifty, CNX IT, BANK Nifty and 116 
single stocks.
Warrants: Options generally have lives of up to one year. The majority of options traded on 
exchanges have maximum maturity of nine months. Longer dated options are called Warrants 
and are generally traded over-the-counter.
What is an ‘Option Premium’?
At the time of buying an option contract, the buyer has to pay premium. The premium is the 
price for acquiring the right to buy or sell. It is price paid by the option buyer to the option seller 
for acquiring the right to buy or sell. Option premiums are always paid upfront.
A Commodity Exchange is an association, or a company of any other body corporate organizing 
futures trading in commodities. In a wider sense, it is taken to include any organized market 
place where trade is routed through one mechanism, allowing effective competition among 
buyers and among sellers - this would include auction-type exchanges, but not wholesale 
markets, where trade is localized, but effectively takes place through many non-related 
individual transactions between different permutations of buyers and sellers.
FCRA Forward Contracts (Regulation) Act, 1952 defines “goods” as “every kind of movable 
property other than actionable claims, money and securities”. Futures’ trading is organized in 
DERIVATIVES
Chapter 5
30
Page 2


Unit Code: 5 Unit  Title: Derivatives
Session-1 : Futures and Options Market
Location:
Class Room,
Stock
Exchange,
FMM Lab,
Learning 
Outcome
Knowledge 
Evaluation
Performance 
Evaluation
Teaching and 
Training Method
Session-2 : Commodity
·
·
Find the 
Derivatives 
Instruments
Difference 
between future 
and options.
·
·
Behavior of 
Derivative 
Trading
Risk to Trade 
in Derivatives
Interactive lecture:
Risk and Return of 
Derivative Trading
Activity:
Mock Trading 
Techniques of 
Derivatives
·
·
How you 
access 
Derivative 
Terminal
Is option more 
suited product 
against future
·
·
Identify the 
features of 
Commodity 
Derivatives
Distinguish 
between 
Commodity & 
Financial 
Derivatives 
·
·
Commodity 
Derivative 
Exchange in 
India
How 
Commodity 
Trade
Interactive lecture:
Risk and Returns of 
Commodity 
Trading 
Activity:
Trading Techniques 
Basics of 
Commodity Market
·
·
Three 
participants 
Hedgers
Speculators
Arbitrageurs
Performance 
of Commodity 
& Financial 
Derivatives
What are Types of Derivatives?
What is ‘Commodity Exchange’?
What is meant by ‘Commodity’?
Forwards: A forward contract is a customized contract between two entities, where settlement 
takes place on a specific date in the future at today’s pre-agreed price.
Futures: A futures contract is an agreement between two parties to buy or sell an asset at a 
certain time in the future at a certain price. Futures contracts are special types of forward 
contracts in the sense that the former are standardized exchange-traded contracts, such as 
futures of the Nifty index.
Options: An Option is a contract which gives the right, but not an obligation, to buy or sell the 
underlying at a stated date and at a stated price. While a buyer of an option pays the premium 
and buys the right to exercise his option, the writer of an option is the one who receives the 
option premium and therefore obliged to sell/buy the asset if the buyer exercises it on him. 
Options are of two types - Calls and Puts options:
‘Calls’ give the buyer the right but not the obligation to buy a given quantity of the underlying 
asset, at a given price on or before a given future date.
‘Puts’ give the buyer the right, but not the obligation to sell a given quantity of underlying asset 
at a given price on or before a given future date.
Presently, at NSE futures and options are traded on the Nifty, CNX IT, BANK Nifty and 116 
single stocks.
Warrants: Options generally have lives of up to one year. The majority of options traded on 
exchanges have maximum maturity of nine months. Longer dated options are called Warrants 
and are generally traded over-the-counter.
What is an ‘Option Premium’?
At the time of buying an option contract, the buyer has to pay premium. The premium is the 
price for acquiring the right to buy or sell. It is price paid by the option buyer to the option seller 
for acquiring the right to buy or sell. Option premiums are always paid upfront.
A Commodity Exchange is an association, or a company of any other body corporate organizing 
futures trading in commodities. In a wider sense, it is taken to include any organized market 
place where trade is routed through one mechanism, allowing effective competition among 
buyers and among sellers - this would include auction-type exchanges, but not wholesale 
markets, where trade is localized, but effectively takes place through many non-related 
individual transactions between different permutations of buyers and sellers.
FCRA Forward Contracts (Regulation) Act, 1952 defines “goods” as “every kind of movable 
property other than actionable claims, money and securities”. Futures’ trading is organized in 
DERIVATIVES
Chapter 5
30
such goods or commodities as are permitted by the Central Government. At present, all goods 
and products of agricultural (including plantation), mineral and fossil origin are allowed for 
futures trading under the auspices of the commodity exchanges recognized under the FCRA.
Commodity derivatives market trade contracts for which the underlying asset is commodity. It 
can be an agricultural commodity like wheat, soybeans, rapeseed, cotton, etc or precious metals 
like gold, silver, etc.
The basic concept of a derivative contract remains the same whether the underlying happens to 
be a commodity or a financial asset. However there are some features which are very peculiar to 
commodity derivative markets. In the case of financial derivatives, most of these contracts are 
cash settled. Even in the case of physical settlement, financial assets are not bulky and do not 
need special facility for storage. Due to the bulky nature of the underlying assets, physical 
settlement in commodity derivatives creates the need for warehousing. Similarly, the concept of 
varying quality of asset does not really exist as far as financial underlyings are concerned. 
However in the case of commodities, the quality of the asset underlying a contract can vary at 
times.
What is Commodity Derivatives Market?
What is the difference between Commodity and Financial derivatives?
Unit Code: 6 Unit  Title: Depository
Session-1 : Holding of Securities
Location:
Class Room,
Stock
Exchange,
FMM Lab
Learning 
Outcome
Knowledge 
Evaluation
Performance 
Evaluation
Teaching and 
Training Method
Session-2 : Ownership
·
·
Similarities 
between Bank 
and Depositary
Role of 
Depositary
·
·
How many 
Depositaries 
and 
Depositary 
participants 
are there in 
India
Discuss 
features
Interactive lecture:
Benefits of Holding 
Electronic Shares
Activity:
Discussion on 
Physical Securities
·
·
How to open 
Demat a/c
DRF 
Procedure
·
·
·
Benefits of 
Equity 
Ownership
Describe ISIN
Role of 
Custodians
·
·
Identify ISIN 
of few 
Securities
How 
Company get 
ISIN
Interactive lecture:
Discuss Corporate 
Actions of any 
Company
Activity:
Calculate all 
Corporate Benefits
·
·
·
Corporate 
Actions
Stock Benefits
Cash Benefits
Session-3 : Dematerialization
·
·
Conversion of 
Physical to 
Electronic 
form to shares
Demat 
Benefits
·
·
Procedure of 
Demat and 
Remat
Nomination & 
other 
Documentation
Interactive lecture:
All steps of Demat
Activity:
Fill DRF and 
Submit in DP
· Proofs, 
Procedures 
and Objection 
of Demat 
Mode
Introduction to Financial Markets
33
Page 3


Unit Code: 5 Unit  Title: Derivatives
Session-1 : Futures and Options Market
Location:
Class Room,
Stock
Exchange,
FMM Lab,
Learning 
Outcome
Knowledge 
Evaluation
Performance 
Evaluation
Teaching and 
Training Method
Session-2 : Commodity
·
·
Find the 
Derivatives 
Instruments
Difference 
between future 
and options.
·
·
Behavior of 
Derivative 
Trading
Risk to Trade 
in Derivatives
Interactive lecture:
Risk and Return of 
Derivative Trading
Activity:
Mock Trading 
Techniques of 
Derivatives
·
·
How you 
access 
Derivative 
Terminal
Is option more 
suited product 
against future
·
·
Identify the 
features of 
Commodity 
Derivatives
Distinguish 
between 
Commodity & 
Financial 
Derivatives 
·
·
Commodity 
Derivative 
Exchange in 
India
How 
Commodity 
Trade
Interactive lecture:
Risk and Returns of 
Commodity 
Trading 
Activity:
Trading Techniques 
Basics of 
Commodity Market
·
·
Three 
participants 
Hedgers
Speculators
Arbitrageurs
Performance 
of Commodity 
& Financial 
Derivatives
What are Types of Derivatives?
What is ‘Commodity Exchange’?
What is meant by ‘Commodity’?
Forwards: A forward contract is a customized contract between two entities, where settlement 
takes place on a specific date in the future at today’s pre-agreed price.
Futures: A futures contract is an agreement between two parties to buy or sell an asset at a 
certain time in the future at a certain price. Futures contracts are special types of forward 
contracts in the sense that the former are standardized exchange-traded contracts, such as 
futures of the Nifty index.
Options: An Option is a contract which gives the right, but not an obligation, to buy or sell the 
underlying at a stated date and at a stated price. While a buyer of an option pays the premium 
and buys the right to exercise his option, the writer of an option is the one who receives the 
option premium and therefore obliged to sell/buy the asset if the buyer exercises it on him. 
Options are of two types - Calls and Puts options:
‘Calls’ give the buyer the right but not the obligation to buy a given quantity of the underlying 
asset, at a given price on or before a given future date.
‘Puts’ give the buyer the right, but not the obligation to sell a given quantity of underlying asset 
at a given price on or before a given future date.
Presently, at NSE futures and options are traded on the Nifty, CNX IT, BANK Nifty and 116 
single stocks.
Warrants: Options generally have lives of up to one year. The majority of options traded on 
exchanges have maximum maturity of nine months. Longer dated options are called Warrants 
and are generally traded over-the-counter.
What is an ‘Option Premium’?
At the time of buying an option contract, the buyer has to pay premium. The premium is the 
price for acquiring the right to buy or sell. It is price paid by the option buyer to the option seller 
for acquiring the right to buy or sell. Option premiums are always paid upfront.
A Commodity Exchange is an association, or a company of any other body corporate organizing 
futures trading in commodities. In a wider sense, it is taken to include any organized market 
place where trade is routed through one mechanism, allowing effective competition among 
buyers and among sellers - this would include auction-type exchanges, but not wholesale 
markets, where trade is localized, but effectively takes place through many non-related 
individual transactions between different permutations of buyers and sellers.
FCRA Forward Contracts (Regulation) Act, 1952 defines “goods” as “every kind of movable 
property other than actionable claims, money and securities”. Futures’ trading is organized in 
DERIVATIVES
Chapter 5
30
such goods or commodities as are permitted by the Central Government. At present, all goods 
and products of agricultural (including plantation), mineral and fossil origin are allowed for 
futures trading under the auspices of the commodity exchanges recognized under the FCRA.
Commodity derivatives market trade contracts for which the underlying asset is commodity. It 
can be an agricultural commodity like wheat, soybeans, rapeseed, cotton, etc or precious metals 
like gold, silver, etc.
The basic concept of a derivative contract remains the same whether the underlying happens to 
be a commodity or a financial asset. However there are some features which are very peculiar to 
commodity derivative markets. In the case of financial derivatives, most of these contracts are 
cash settled. Even in the case of physical settlement, financial assets are not bulky and do not 
need special facility for storage. Due to the bulky nature of the underlying assets, physical 
settlement in commodity derivatives creates the need for warehousing. Similarly, the concept of 
varying quality of asset does not really exist as far as financial underlyings are concerned. 
However in the case of commodities, the quality of the asset underlying a contract can vary at 
times.
What is Commodity Derivatives Market?
What is the difference between Commodity and Financial derivatives?
Unit Code: 6 Unit  Title: Depository
Session-1 : Holding of Securities
Location:
Class Room,
Stock
Exchange,
FMM Lab
Learning 
Outcome
Knowledge 
Evaluation
Performance 
Evaluation
Teaching and 
Training Method
Session-2 : Ownership
·
·
Similarities 
between Bank 
and Depositary
Role of 
Depositary
·
·
How many 
Depositaries 
and 
Depositary 
participants 
are there in 
India
Discuss 
features
Interactive lecture:
Benefits of Holding 
Electronic Shares
Activity:
Discussion on 
Physical Securities
·
·
How to open 
Demat a/c
DRF 
Procedure
·
·
·
Benefits of 
Equity 
Ownership
Describe ISIN
Role of 
Custodians
·
·
Identify ISIN 
of few 
Securities
How 
Company get 
ISIN
Interactive lecture:
Discuss Corporate 
Actions of any 
Company
Activity:
Calculate all 
Corporate Benefits
·
·
·
Corporate 
Actions
Stock Benefits
Cash Benefits
Session-3 : Dematerialization
·
·
Conversion of 
Physical to 
Electronic 
form to shares
Demat 
Benefits
·
·
Procedure of 
Demat and 
Remat
Nomination & 
other 
Documentation
Interactive lecture:
All steps of Demat
Activity:
Fill DRF and 
Submit in DP
· Proofs, 
Procedures 
and Objection 
of Demat 
Mode
Introduction to Financial Markets
33
such goods or commodities as are permitted by the Central Government. At present, all goods 
and products of agricultural (including plantation), mineral and fossil origin are allowed for 
futures trading under the auspices of the commodity exchanges recognized under the FCRA.
Commodity derivatives market trade contracts for which the underlying asset is commodity. It 
can be an agricultural commodity like wheat, soybeans, rapeseed, cotton, etc or precious metals 
like gold, silver, etc.
The basic concept of a derivative contract remains the same whether the underlying happens to 
be a commodity or a financial asset. However there are some features which are very peculiar to 
commodity derivative markets. In the case of financial derivatives, most of these contracts are 
cash settled. Even in the case of physical settlement, financial assets are not bulky and do not 
need special facility for storage. Due to the bulky nature of the underlying assets, physical 
settlement in commodity derivatives creates the need for warehousing. Similarly, the concept of 
varying quality of asset does not really exist as far as financial underlyings are concerned. 
However in the case of commodities, the quality of the asset underlying a contract can vary at 
times.
What is Commodity Derivatives Market?
What is the difference between Commodity and Financial derivatives?
Unit Code: 6 Unit  Title: Depository
Session-1 : Holding of Securities
Location:
Class Room,
Stock
Exchange,
FMM Lab
Learning 
Outcome
Knowledge 
Evaluation
Performance 
Evaluation
Teaching and 
Training Method
Session-2 : Ownership
·
·
Similarities 
between Bank 
and Depositary
Role of 
Depositary
·
·
How many 
Depositaries 
and 
Depositary 
participants 
are there in 
India
Discuss 
features
Interactive lecture:
Benefits of Holding 
Electronic Shares
Activity:
Discussion on 
Physical Securities
·
·
How to open 
Demat a/c
DRF 
Procedure
·
·
·
Benefits of 
Equity 
Ownership
Describe ISIN
Role of 
Custodians
·
·
Identify ISIN 
of few 
Securities
How 
Company get 
ISIN
Interactive lecture:
Discuss Corporate 
Actions of any 
Company
Activity:
Calculate all 
Corporate Benefits
·
·
·
Corporate 
Actions
Stock Benefits
Cash Benefits
Session-3 : Dematerialization
·
·
Conversion of 
Physical to 
Electronic 
form to shares
Demat 
Benefits
·
·
Procedure of 
Demat and 
Remat
Nomination & 
other 
Documentation
Interactive lecture:
All steps of Demat
Activity:
Fill DRF and 
Submit in DP
· Proofs, 
Procedures 
and Objection 
of Demat 
Mode
32