Derivative market has emerged as one of the most important securities markets worldwide. Though derivative markets is still in a nascent stage in India, there is an increasing awareness about this market. This article traces the development of derivative market, particularly in India, and discusses its issues and opportunities.

Capital market is one of the most important sectors of the financial system of any country as it has a direct impact on the economic development of the country. As one of the representatives of a free economy capital markets serve as an important link between the demand for and supply of long-term capital funds for productive investments in industrial and commercial units. A well developed capital market canalizes savings of the people towards profitable investments. It has been observed that countries where capital markets are not developed a large portion of funds remain idle and there is no proper funneling of investments. It is primarily because of this fact that an efficient capital market is an indispensable requirement for rapid economic development of a country. Capital market developments across the world have influenced Indian capital markets also. In the last 15 years, capital markets in India have witnessed sea change and have attained remarkable degree of growth. With the opening up of the economy for multinationals, and liberalized economic policies, Indian economy is achieving newer horizons every day. But these new horizons have also brought new challenges along with them.

The complex nature of financial structuring has exposed corporates to newer types of risks such as exchange rate risk, interest rate risk, market risk, inflation risk etc. Business activities are increasing day by day and are resulting in the increasing magnitude and frequency of above mentioned risks. The biggest challenge that Indian corporates face today is to protect their operating profits from these risks. Hence risk management has become very essential for corporate houses in order to survive.

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