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BACKGROUND
The Oxford dictionary defines a derivative as something derived or obtained
from another, coming from a source; not original. In the field of financial
economics, a derivative security is generally referred to a financial contract
whose value is derived from the value of an underlying asset or simply
underlying. Derivatives are financial contract or financial instrument whose
prices are derived from the price of something else. The underlying price
on which a derivative is based can be that of asset (e.g ., commodities,
equities, residential mortgages, commercial real estate, loans, bonds ), an
index(e.g, interest rates, exchange rates, stock market indices, consumer
price index(CPI) i.e. inflations derivatives )or other item. Credit derivatives
are based on loans, bonds or other forms of credit. Derivatives allow risk
about the price of the underlying asset to be transferred from one party to
another.
STATEMENT OF PROBLEM
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THEORETICAL FRAMEWORK
Karan lama (BOD at Global Pristine Enterprises Pvt. Ltd)(2015), explain
that the Nepali derivative market are still not secured. Customers were
still not trusted on the market, because of the lack of supervisory body.
Exchange in Nepal not highly standardizes, comparing with international
level exchange. He also explains his case studies or thesis, MEX is the 1st
exchange which provides standardizes platform for future derivative
contracts.
Maria Pochea (2012) explains on his PHD thesis, Derivatives can be used
either for risk management (i.e. to hedge by providing offsetting
compensation in case of undesired event a kind of insurance) or for
speculation (i.e. making a financial bet).
hedging
participa speculation
nts
arbitration
Dependent variables independent variables
DEFINATION OF TERMINOLOGY
Hedging
The risk of increase and decrease price in future is mitigation by
making a contract through exchange is called hedging. For example
producers make a contract for mitigate the risk of decrease price in
future whereas customer make a contract to mitigate a loss due to the
increase in price in future is call hedging.
SPECULATIONS
ARBITRATION
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STATEMENT OF HYPOTHESIS
RESEARCH METHODOLOGY
The research design will consists of descriptive research designs to deal
with the various aspects. The descriptive research design will be developed
with the aim of studying the subject of research in detail. It collects and
presents fact and figures in certain situation. Here we trying to show current
situation of derivatives and risk management in Nepali well organized
exchange.
The study will be utilized both the primary and secondary source of data.
The derivatives products which are traded in the exchange and their risk and
returns analysis related data are collect form the secondary source. The
overall present condition of derivatives and current situation of derivative
market and its trust ability will be collected form primary and secondary both
of source.
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SECONDARY DATA
The study will be based on secondary data; the data will be collected from
the annual book of mercantile exchange (MEX) Nepal, sometimes other
exchange too, internet and newspaper. The study period will be covered
cross sectional period range from fiscal year 2009 to 2016.
PRIMARY DATA
The study relies on data from primary sources. The direct oral interviews,
observation, indirect oral interviews and telephone interviews etc, are use
accordingly the situation and evaluating the time frame. Mainly the primary
data are collect for to know the correct situation of derivatives market and
the participant are feeling secure or not by the exchange.
EXPECTED OUTCOMES
The derivatives market in Nepal are recently introduce in standardizes
platform. There is a lack of supervise by the government sectors. Due the
reason of lack of supervisory participant are feel less secure compare to the
exchange participant of well supervise country exchange. Other hand people
have no ideas about the derivatives concept. Maximum are enter without
knowledge of the derivatives.
In our study we are try to know the current situation of tools and technology
use by exchange, the risk management procedures of the exchange, the
current situation of the participant trend with previous in terms of number of
participant, risk and returns on the basic of product wise and other relevant
for derivatives markets. So ours study is help full for the participant and the
academician to knows the security of participant to involves in derivatives
exchange and the exact picture of derivatives exchange in Nepal. its also
helpful to the investors to build a basic knowledge about a derivatives before
entering in this filled.
CHAPTER PLAN
The first chapter will be the introduction part which contains general background of the study,
definition & function, introduction to the sample, statement of problems, objectives of the study,
research questions, theoretical framework, and limitations of the study.
The second chapter will be the Review of Literature. In this chapter, the researcher will review
the past study and the implementation of models in different times and economy. It includes the
conceptual framework, review of articles and dissertations done in the past.
The third chapter will be the research methodology which states about the research design,
define the size of population and sample taken, mentions the sources to data, and explains the
tools employed in the study to serve the objectives set earlier.
The fourth chapter will be the data presentation and analysis. In this chapter, the researcher will
collect show the data and present it in the desired manner through the use of table, graphs,
equations etc. and analyzed by using the methods explained in earlier chapter.
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The last chapter will be the summary, conclusions and recommendations. In this chapter, the
researcher will summarize the whole study, draw the conclusions based on the findings made
earlier and finally make appropriate recommendations to the concerned parties.