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Presentation on Derivatives Hasan A Bilgrami Karachi, March 18, 2006

Presentation on Derivatives Hasan A Bilgrami Karachi, March 18, 2006. Presentation Objectives. Introduction to Derivatives: Definitions; Futures; Options; Swaps. Taxation strategy. Definition. Any asset which derives its value from an underlying asset Shares

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Presentation on Derivatives Hasan A Bilgrami Karachi, March 18, 2006

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  1. Presentation on Derivatives Hasan A Bilgrami Karachi, March 18, 2006

  2. Presentation Objectives Introduction to Derivatives: Definitions; Futures; Options; Swaps. Taxation strategy

  3. Definition Any asset which derives its value from an underlying asset Shares Asset Backed Securities Mortgage Backed Securities

  4. Futures An agreement made today for a transaction on a future date. Is 'listed' else called 'Forward'; Obligatory for both buyer and seller; Actual delivery may take place; Mainly used in Agricultural products, currencies, oil etc. Gains/losses are capital items in nature March 18th: Deliver 10,000 bales of cotton on January 18th at KCE @ Rs. 1,000/bale

  5. Options An agreement made today for a transaction on a future date in such a way that it gives an 'Option' to the buyer and creates an obligation to the seller. May or may not be 'listed'; Option is always created on an underlying asset e.g. Shares, interest rates, currencies, commodities etch etc. Gains/losses are capital items in nature March 18: Purchase 10,000 PTCL @ Rs. 65/Share on April 1.

  6. Swaps Notional exchange of cash flows; Is always a private transaction. Gains losses are not capital in nature First Bank exchanges US $ 10m with Second Bank for a period of 1 year. Pays 10% fixed, receives KIBOR + 1%

  7. Why do it? Speculation; Hedging; Price discovery; Levrage; Executive compensation.

  8. Tax strategy objectives Capital formation; Broadening corporate ownership; Bringing market discipline; Reducing Risk; Revenue collection

  9. THANK YOU

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