Disadvantages Of Derivative Contracts

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DERIVATIVE is a transaction or contract whose value depends on or, as the name implies, derives from the value of underlying assets such as stock, bonds, mortgages, market indices, or foreign currencies. One party with exposure to unwanted risk can pass some or all of the risk to a second party. The first party can assume a different risk from a second party, pay the second party to assume the risk, or, as is often the case, create a combination. Derivatives are normally used to control exposure or risk.
DERIVATIVE CONTRACT is, generally, a financial contract the value of which is derived from the values of one or more underlying assets, reference rates, or indices of asset values, or credit-related events. Derivative contracts include interest rate, foreign exchange rate, equity, precious metals, commodity, and credit contracts, and any other instruments that pose similar risks.
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Put and call options are ubiquitous in modern investment agreements, such as those involving joint ventures as well as private equity and venture capital investments. The enforceability of put and call options in Indian companies has been the subject matter of debate due to the existence of stringent securities legislation that has been supported by strict judicial interpretation. Moreover, pronouncements by India’s securities regulator, the Securities and Exchange Board of India, have expressly disallowed options in securities of Indian companies (except private
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