The Indian derivatives market witnessed a mammoth change in the recent past. Investors in this market have access to a host of instruments such as stock options, stock futures, index futures etc. With the interest rate scenario showing a southward trend, the RBI has given a green signal for trading in exchange traded interest rate futures. These instruments can be used by the market participants for hedging their transactions against the fluctuations in the interest rates. But it is important for investors to understand the niceties of this new instrument in order to reap maximum benefits.

In tune with changing times, Indian financial markets have undergone a virtual transformation with the emergence of new products that are now available in the Indian bourses. These products are the outcome of the removal of longstanding regulatory restrictions. The basket of investment instruments has expanded steadily to include index futures and options, stock futures and options, commodity futures, and interest rate swaps. In this era of changing interest rates, the only thing certain about them is uncertainty. You may lose out on returns on your investments when interest rates go down, or you may lose out on floating rate loans when they go up. If you are keen on hedging these risks, there's good news for you. the launch of interest rate futures!

Financial derivatives markets in India have grown dramatically over the last two years. With increased usage and application of financial derivatives by hedgers as well as speculators, these markets led to a significant increase in volumes. For the month of December 2002, derivatives trading on individual stocks accounted for as much as 87.34% of the total turnover in derivatives trading on the National Stock Exchange (NSE).

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