OTC Derivatives Market in India - DAAD partnership on economic ...

2. Why <strong>OTC</strong> <strong>Derivatives</strong> Are
Important
1. <strong>OTC</strong> markets promote the price discovery
process <strong>in</strong> f<strong>in</strong>ancial markets
2. <strong>OTC</strong> markets provide liquidity to the f<strong>in</strong>ancial
markets
3. <strong>OTC</strong> markets help <strong>in</strong> risk managment <strong>in</strong>herent <strong>in</strong>
underly<strong>in</strong>g assets by transfer<strong>in</strong>g the risk to the
party, which can shoulder it best
4. Competition between <strong>OTC</strong> and exchange-traded
derivatives mimimize transaction costs
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3. Some Stylized Facts about Global
<strong>OTC</strong> <strong>Derivatives</strong> (I)
1. The <strong>OTC</strong> derivatives can be divided <strong>in</strong>to five
ma<strong>in</strong> categories:
i. Interest Rate <strong>Derivatives</strong>
ii. Foreign Exchange <strong>Derivatives</strong>
iii. Credit <strong>Derivatives</strong>
iv. Equity-l<strong>in</strong>ked <strong>Derivatives</strong>
v. Commodity <strong>Derivatives</strong>
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