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Consider the following statements in the context of derivatives:
Derivatives are securities that derive their value from an underlying asset or benchmark.
Derivatives in India are regulated both by the Reserve Bank of India and the Securities and Exchange Board of India (SEBI).
Which of the statements given above is/are correct?
- a)1 only
- b)2 only
- c)Both 1 and 2
- d)Neither 1 nor 2
Correct answer is option 'C'. Can you explain this answer?
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Consider the following statements in the context of derivatives: ...
- A derivative is a financial security with a value that is reliant upon or derived from, an underlying asset or group of assets—a benchmark. The derivative itself is a contract between two or more parties, and the derivative derives its price from fluctuations in the underlying asset. Hence, statement 1 is correct.
- The framework for regulating derivative transactions is provided in the various Acts of Government of India such as Securities Contracts (Regulation) Act, 1956, Reserve Bank of India Act, 1934, Forward Contracts (Regulation) Act 1952.
- Derivatives instruments in India are regulated by the Reserve Bank of India, Securities, and Exchange Board of India (SEBI) and Forward Markets Commission (FMC). Subsequent to the passing of the Finance Act 2015, FMC was merged with SEBI with effect from 29 September 2015. Hence, statement 2 is correct.
- Broadly, RBI is empowered to regulate the interest rate derivatives, foreign currency derivatives and credit derivatives. While SEBI regulates other derivatives of equity, commodity and stock indexes.
- The derivatives can be Forwards or Futures or Options or Warrants:
- Forward & Future Contract: A forward contract is a customized contract between two parties to buy or sell an asset at a specified future time at a price agreed upon today. Futures contracts are special types of forwarding contracts in the sense that they 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 an underlying asset at a given price on or before a given future date.
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Consider the following statements in the context of derivatives: ...
Statement 1: Derivatives are securities that derive their value from an underlying asset or benchmark.
Derivatives refers to financial contracts whose value is derived from an underlying asset or benchmark. The underlying asset can be a commodity, stock, bond, currency, or even an index. The value of a derivative is dependent on the fluctuations in the price of the underlying asset. Examples of derivatives include options, futures, swaps, and forwards. Therefore, statement 1 is correct.
Statement 2: Derivatives in India are regulated both by the Reserve Bank of India and the Securities and Exchange Board of India (SEBI).
In India, derivatives are regulated by both the Reserve Bank of India (RBI) and the Securities and Exchange Board of India (SEBI). The RBI is responsible for regulating derivatives in the banking sector, while SEBI regulates derivatives in the capital markets. The regulatory framework for derivatives in India aims to ensure transparency, fairness, and stability in the derivatives market. Both the RBI and SEBI have issued guidelines and regulations for the trading, settlement, and risk management of derivatives. Therefore, statement 2 is correct.
Conclusion:
Both statement 1 and statement 2 are correct, which means the correct answer is option 'C' - Both 1 and 2. Derivatives are indeed securities that derive their value from an underlying asset or benchmark, and in India, they are regulated by both the Reserve Bank of India (RBI) and the Securities and Exchange Board of India (SEBI).
Derivatives refers to financial contracts whose value is derived from an underlying asset or benchmark. The underlying asset can be a commodity, stock, bond, currency, or even an index. The value of a derivative is dependent on the fluctuations in the price of the underlying asset. Examples of derivatives include options, futures, swaps, and forwards. Therefore, statement 1 is correct.
Statement 2: Derivatives in India are regulated both by the Reserve Bank of India and the Securities and Exchange Board of India (SEBI).
In India, derivatives are regulated by both the Reserve Bank of India (RBI) and the Securities and Exchange Board of India (SEBI). The RBI is responsible for regulating derivatives in the banking sector, while SEBI regulates derivatives in the capital markets. The regulatory framework for derivatives in India aims to ensure transparency, fairness, and stability in the derivatives market. Both the RBI and SEBI have issued guidelines and regulations for the trading, settlement, and risk management of derivatives. Therefore, statement 2 is correct.
Conclusion:
Both statement 1 and statement 2 are correct, which means the correct answer is option 'C' - Both 1 and 2. Derivatives are indeed securities that derive their value from an underlying asset or benchmark, and in India, they are regulated by both the Reserve Bank of India (RBI) and the Securities and Exchange Board of India (SEBI).
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Consider the following statements in the context of derivatives: Derivatives are securities that derive their value from an underlying asset or benchmark. Derivatives in India are regulated both by the Reserve Bank of India and the Securities and Exchange Board of India (SEBI). Which of the statements given above is/are correct?a)1 onlyb)2 onlyc)Both 1 and 2d)Neither 1 nor 2Correct answer is option 'C'. Can you explain this answer?
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