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Derivative SecurityIt’s a security whose value depends on the value of other basic variables backing thesecurity.

 A derivative security is basically used as risk management tool and it is resorted tocover the risks due to price fluctuations by the investments manager.

It helps to break the risks into various components such as credit risk, interest rates risk,exchange rates risk and so on.In India some forms of derivatives are in operation namely forwards in forex market

Letter of Credit (LOC) An innovative funding mechanism for the import of goods and services on deferredpayment terms.LO is an arrangement of a financing institution !bank of one country with anotherinstitution ! bank! agent to support the export of goods and services so as to enable theimporters to import on deferred payment terms."his is backed by a guarantee furnished by the institution ! bank in the importingcountry."his helps the exporter to get payment immediately as soon as the goods are shipped.

Infrastructure BondIt is a kind of debt instrument issued with a view to giving tax shelter to investors."he resources raised through this bond will be used for promoting investment in thefield of certain infrastructure industries."ax concessions are available under sec. ##, sec.$% &A and sec. $% &' of Income "ax

 Act.()*O has issued for the first time such bonds.

It’s face value was +s. --- each carrying an interest rate of $ per annum payablesemi/annually.

Miscellaneous0ankee 'onds 1 If bonds are raised in )2A, they are called as 0ankee 'onds and if theyraised in 3apan they are called as 2amurai 'ond.4loating +ate 5otes 64+5s7 1 "hese are debt instrument which facilitate the

periodic interest rate ad8ustment.Loyalty oupons 1 "hese are enti tlements to the holder of debt for two to three yearsto exchange into e9uity shares at discount prices.:lobal *epository +eceipt 1 It’s a dollar denominated instrument traded in a stock exchangein &urope or the )2A.

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