Derivatives

Why it matters

• Enables price discovery and risk management for businesses by allowing them to hedge against future price volatility.
• Enhances market liquidity by facilitating the transfer of risk from parties seeking to avoid it to those willing to assume it for profit.
• Acts as a mechanism for capital efficiency by allowing market participants to gain exposure to assets without requiring full upfront ownership.

How it is asked

Focus on the role of derivatives in financial stability, the regulatory oversight provided by bodies like SEBI, and their impact on market volatility and systemic risk.