Financial Derivatives (FIN 647) First Assignment

Submitted to Dr. Mohammad Arman [Rma]

Assistant Professor & Chair North South University

Submitted By Abdulla Al Amin ID: 141 1794 060

Date of Submission February 03, 2015

Derivatives in Bangladesh

A derivative instrument is a security whose value is derived from, and therefore, depends upon, the value of some underlying assets. These securities have no intrinsic value; their returns are linked to, or derived from, some other product or underlying asset. So my perception about derivatives in Bangladesh is not a positive one, as I believe to start derivatives, there should be a strong and efficient capital market. However, derivatives itself is difficult thing to understand. As still most of the people of our country are investing through speculating rather than based on fundamentals, it will be a difficult task to utilize the positive side of derivatives like risk minimizing. So if we start implementing derivatives, we need to arrange some training session on derivatives, otherwise many people will use it for their own benefits through gambling. We have to consider the example of china, which was failed in derivative market in 1995. The Shanghai derivatives failure has been a lesson for any exchanges. So to develop a strong derivative market there has to be a strong and liquid money market where the volatility of a well-designed derivative is within acceptable limits. There has to be transparent legal and regulatory structures as well. None of them exists in our market that indicates that we are not ready for derivatives market now. Though lots of banks are using commodity derivatives like SCB is doing cotton hedge for the Group for Square Textiles.