A Conceptual Framework of Derivatives Market in Bangladesh

Abstract

Derivatives are considered to be extremely versatile financial instruments, as they help to manage risks, lower funding costs, enhance yields and diversify portfolios. The contributions made by derivatives have been so great that they have been credited with having ‘changed the face of finance' in the world. Derivatives markets are successful institutions because they make financial markets more efficient. Derivatives markets are an integral part of capital markets in developed as well as in emerging market economies. This paper is descriptive in nature and based on the secondary data. This study attempts to discuss the theoretical aspects regarding derivatives market. Here researchers focus the various types of future contracts, how a futures contract works, participants in the derivatives market, the terminology used in derivatives market and the role of derivatives market. The paper aims to look a framework of derivatives market in Bangladesh and present the preconditions of a derivatives market, basis for derivatives in Bangladesh, some risks associated with derivatives market. Furthermore, some useful recommendations are provided for creating derivatives market.