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FINAL REPORT HEDGING THROUGH GOLD OPTIONS AND FUTURES COST BENEFIT ANALYSIS A REPORT ON |HEDGING THROUGH GOLD OPTIONS AND FUTURES-COST BENEFIT ANALYSIS}

Hedging through gold options and futures Cost Benefit Analysis 2 A REPORT ON HEDGING THROUGH GOLD OPTIONS AND FUTURES- COST BENEFIT ANALYSIS Submitted as partial fulfillment of the requirement of the MBA Program of IBS SUBMITTED BY SHRUTI DROLIA 08BS0003195 SUBMITTED TO DR. KRISHNA PRASANNA FACULTY, IBS HYDERABAD

Hedging through gold options and futures Cost Benefit Analysis 3 DECLARATION I, ShrutiDrolia hereby declare that this project report entitled Hedging through gold options and futures- Cost Benefit Analysis is submitted by me for partial fulfillment of the M.B.A. program of I.B.S.Hyderabad. This report is exclusively prepared by me under the guidance of Dr Krishna Prasanna, Faculty IBS. This project report has not been submitted to any other institution or published anywhere before. DATE: SIGNATURE

Hedging through gold options and futures Cost Benefit Analysis 4 Certificate of Completion of Management Research Project. T his is to certify that SHRUTI DROLIA has successfully completed Management Research Project on Hedging through gold option and futures- Cost Benefit Analysis, under the supervision of Dr Krishna Prasanna, Faculty IBS. Dr Krishna Prasanna Faculty IBS.

Hedging through gold options and futures Cost Benefit Analysis 5 ACKNOWLEDGEMENT It is a moment of great pleasure for me to acknowledge the help of all individuals who helped me make this project successful. I am sincerely thankful to my faculty guide, Dr Krishna Prasanna (faculty, IBS-Hyderabad) who had an immense patient to take up my all queries and suggest me her invaluable suggestions. Her guidance and encouragement has showed the path of fulfillment of my project. I feel honored to have worked under the guidance of, Dr Krishna Prasanna, Faculty IBS. I thank her for her cooperation and encouragement throughout the project. I would like to thank all my friends who helped me directly or indirectly in the successful completion of this project work.

Hedging through gold options and futures Cost Benefit Analysis 6 Abstract: It deals with the study of risks involved as well as the risk management techniques employed. Risk management and price discovery are two main functions of future market. Future markets perform risk allocation function and can be used to hedge the prices. One of the determinants of success of future market is its hedging effectiveness. Hedging in future market involves purchase/sale of futures in combination with another commitment, usually with the expectation of favorable change in relative prices of spot and future market of gold. The basic idea of hedging through future market is to compensate loss/profit in future market by profit/loss in spot market. Various actors in the commodity market can manage their activities in an environment of unstable and uncertain prices through the use of the commodity futures market to assure or reduce their risk exposure. Indian commodity future market has been going through many ups and downs after inception of national exchanges came into being. High growth in Indian commodity futures markets has been accompanied by higher volatility in prices which requires a systematic investigation of hedging effectiveness provided by these markets. At the same time options strategies would be used for the hedging. With the help of binomial model prices would be determined to establish the relationship between the future and the spot prices of gold. FINAL MRP

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