Usage of Derivatives by Non Financial Firms

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ACKNOWLEDGEMENT

I would take this opportunity to thank my research supervisor, family and friends for their support and guidance without which this research would not have been possible.

DECLARATION

I, [type your full first names and surname here], declare that the contents of this dissertation/thesis represent my own unaided work, and that the dissertation/thesis has not previously been submitted for academic examination towards any qualification. Furthermore, it represents my own opinions and not necessarily those of the University.

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TABLE OF CONTENTS

ACKNOWLEDGEMENTii

DECLARATIONiii

CHAPTER 1: INTRODUCTION1

Background of the Study1

Problem Statement2

Significance of the study2

Rationale of the study3

Research Question3

CHAPTER 2: LITERATURE REVIEW4

CHAPTER 3: RESEARCH METHODOLOGY6

Search Technique7

Literature Search7

Search rationale7

Critical Appraisal tool8

Appraisal limitations8

CHAPTER 4: ANTICIPATED RESULTS9

REFERENCES10

BIBLIOGRAPHY12

CHAPTER 1: INTRODUCTION

Background of the Study

The usage of derivates by the non-financial firms is a rising trend that has been observed largely in many countries for the past few years. Usage of derivatives is an important aspect in the markets to reduce the risk in the firm's operation. There are many derivatives that are used by the firms according to their need. The most frequently used derivatives are the Option, Futures and the Swaps. The Option is the derivative that is used by the firms when they are undertaking any contract with the other party. This derivative is a financial instrument that makes both the parties liable for fulfilling their responsibility towards the contract.

The Option is the contract that leads the two parties to the future transaction at some suggested price. The parties involved in the Option are the buyer of the contract and the seller of the contract. The buyer of the contract gets the right to gain the benefits of the contract at the promised but is not obliged to fulfill the contract in the future. Similarly, the seller of the Option is also obliged to fulfill the responsibility of the contract. The value of the Option is determined by the distinction between the suggested price set for the contract and the value of the principal asset for which the contract has been made. The underlying asset can be bonds, stocks and the future contracts. There exist many types of Option in the market. Similarly, these contracts can be created for any kind of valuable assets. The Future contract is another kind of derivative that is used by the companies in order to mitigate the risk. The Future contract is a contract of exchanging a particular asset whose quantity is already fixed through the contract on a specified date between the two parties.

Problem Statement

The usage of derivatives has been significantly increased by the large non-financial firms in most of the countries in order to mitigate the risk factor in the companies.

Significance of the study

The significance of the study can be analyzed by the usage of derivatives in the non-financial firms in the emerging markets. The usage of derivatives has been significantly increased due to the number of reasons. This includes mainly the need for mitigating the risk factor in the non financial ...